many hearing is about four hours. >> communion financial services will come to order to have

without objection author to declare recess of the committee and today's hearing is proxy power in the proposal abuse forming rule 14882 protect shareholder values without objection members will have five legislative days which is a medic strain is material suture inclusion in the record and i recognize myself for five minutes, for an opening statement pretty good morning and welcome to our committee today braided securities laws are being considered during the great depression in the years after, government policymakers sought to ensure stockholders in an active voice over any entrenched management, and directors or controlling group. the intent was that all shareholders their ownership rights around key components of running the business and in capitol allocations. the smile or proxy activist

process was originally designed to empower shareholders and provide them with a voice in company oversight in recent years it's increasingly become co-opted activist investors who primarily focus often lies not in maximizing shareholder value, but pushing euro legal social or personal agenda. fixing the shareholder proposal process diverted away the critical business strategy focus and said become a tool for advancing pulses to distract from company's mission leading to erosion of shareholder values and in addition costly burdens on companies that are working to navigate today's complex business conditions and global competition and as we examine the shareholder proposal process, we also must consider the role of roxie advisory firms. on capitol markets. all these firms can offer

valuable perspective, over the past two decades, their influence corporate governance and voting on particular shareholder proposals has grown significantly. we must ask ourselves firms are still going the intended purpose of serving in the event is dressed up shareholders or if they are distracting from the primary goal of enhancing long-term shareholder values. and we evaluate a landscape surrendered surrounding rule 1488, the sec is essential that we assess the impact of recent regulatory interpretation and guidance and how his legacy where we are today. particularly, we want to look at the staff legal in 14 oh and and 14 have significant impact on influencing heavy companies and shareholders the proposal process predict and in 14 oh issued in november of 2021, then

enter chairman fit shifted from shareholder review to the proposal relevant to specific company to whether the proposed issue had broad societal impacts. any spending accounts as relevant, relevant proposal to order the companies to block items unrelated to their particular business pretty loving activist push measures that are disconnected material from the company's performance as a result, we've seen an uptick in proposals that prioritize social and political issues over shareholder return, which can divert attention from the medical maximizing value for all investors as we look at these recent developments is crucial to consider having reform the regulatory remark and restore balance in his work that the proposal process serves the original intent and i would

argue that i hear from directors of public companies on all sides of the political perspective who share their views, that this process has gotten away from the core 1930s to 1940s preserving long-term shareholder values and without a deal back in a recognize my friend come the ranking member from california missus waters four minute opening statement. >> good and thank you and for years this committee championed the valleys of capitalism and the free market known trump's actions companies like nvidia intel and u.s. that is not capitalism by any definition of the word freighted anywhere, is appropriate for the taxpayers and citizens of this country to help that side when taxpayer

investments rarely profit. corporations and the sheer holders and if we are appropriately an appropriate tax corporation especially goes receive substantial government subsidies, we the taxpayers benefit that we wanted we don't need and yes, trump's demise not growing economy is chaotic interference in private markets and the youth of the government is only to give more ways to bully the american people is is the government to attack cities like los angeles and washington universities like harvard, columbia and brown. nonprofits like the national endowment for the arts news organizations like npr, and pbs pretty for government officials all in law firms, you know, he's attacking corporations another way, trump promised tariffs

would bring americans manufacturing back with the latest top number show that the u.s. lost 42000 any factory jobs since april. this is continued throughout coast of the tariffs. this is the kind of oven. then i entered communist takeover in china ownership what part just like in china, trump is not doing this to help the working class families, simply about control and consolidating power and punishing his enemies and loyalty and retaliating against those refuse to bend to his will and trump samples of american capitalism and our democracy freedom absolutely appalled rated that as i look at

republicans, who claim to be strong capitalist said to help the businesses they own. for example, are you ready to handle it but had over 10 percent business to trump and of course . pretty incest speaking out against capitalism and democracy, republicans are working with trump in the fcc to advance legislation that would further his anticapitalist agenda. the balancing the broth of the shareholders my companies to ignore the legitimate concerns of shareholders about climate change another risk simply because those concerns do not align with trump political agenda and if you want to case study, the share hundred shareholder rights matter look at health, elders report — 56 million award, free thought process ridding the company

reincorporated in texas still proposing there were mr. bostwick averages the package will receive $1 trillion and republicans get the right, by the investors and remaking their board, the longer the independent companies experience fate similar to that of enron, we all know what happened to them as trump operates as a communist and uses his government to control economy democrats will fight to ensure workers not just the corporative the sum of eight they see will and will also fight with congress of the president determines and taxpayer resources on things that truly the taxpayers building houses and healthcare for those in

need. anything less is unacceptable and i yield back. tonight and i recognize the ranking member the subcommittee on capitol markets, mr. sherman for a one minute open statement. >> and capitalism by the sweat of your brow guilty spending to continue v-uppercase-letter of encouragement us to become a shareholder and shareholder should be in control of an out managers and once again come the democratic party rises to the defense of capitalism against the greatest enemies crony capitalism in the head and handmaidens in washington and the chair points out that that corporate managers have said the shareholders have gotten out of hand and we need to stop them this of the bills in front of us are designed to do pretty this is not just theoretical. we know which side of capitalism the chinese communist party is on predict they going to want to buy the technology behind artificial intelligence. the going to want to control it and avoid offer corporations

huge amounts of money in windows transactions close the board get you the bonuses. they don't want shareholders to have about rated and we will be told shareholders get out of the way it is a big payday that's shareholder value and selling out speak i yield back. today testimony senior film director legal policies the men had an partner at jones day mr. ron buehler partner llp and red letter controller the city of new york. we welcome all of you. we thank you for being with us taking your time to share your views with the committee and without objection, to be recognized for five minutes your oral presentation and in your written will be part of the

record. >> he recognized five minute. >> thank you mr. chairman. german health ranking member waters, members of the committee, thank you for the opportunity to testify my name is james — since 2003, i been affiliated with manhattan institute for policy research nonprofit public policy think tank in new york city web service senior fellow director the institute legal policy research. although mccomas were conducted by employer my statement today is fully mailed. and please that the committee is examining the securities of the exchange commission oversees the submission of any of shareholder proposals under rule 14 a and instead it is process for more than 15 years alongside related issues at the regulations including the role proxy advisory firms in the voting practices of large index fund family sprayed addresses topics

length written testimony rated in his opening statement i will focus on three brief points first, u.s. capitol markets continue to lead the world power markets officially allocate capitol and enabled the firm's edit within the last few decades, to become global leaders and dynamism helps explain why u.s. per capita growth outpaced most of the developed nations over the last 30 years. public listings however have fallen more than half since the mid- 1990s. many factors contribute to significant one is the increased cost and complexity of being a public company in the united states. that reality discourages the listings and appease capitol nation. and third, part of the rising costs of public ownership has been's for by congressional actions including well-intentioned cases of

reaching legislative responses to the collapse of the .com bubble in the 2008 financial crisis rated nether costs of public ownership however, headphone from regulatory decisions by the fcc and other agencies, without clear congressional mandate to pretty the fcc's use of rule 1488, to compel inclusion of shareholder proposals on corporate proxy ballots in ways that in practice override safe corporate law. my conclusion which is soon to be for this committee two years ago, remains the fcc shareholder proposal regime exceed the statutory mandate displaces a block without authorization and appease the efficiency and capitol formation congress has instructed the agency to prioritize and congress should

clarify that shareholder board interactions are matters of state law and remind the fcc that is role in facilitating disclosure, dictating the substance of corporate governance. to developments that magnify the cost to the fcc's long-standing error first proxy advisory firms to firms control virtually the entire proxy advice market for each has foreknown it in these two firms have often favored environmental and social campaigns and shareholder engagements and federal policy choices help you verizon this industry is shareholder proposal process has increased his leverage over u.s. companies. and second, half of the index concentration is voting, passive investing is doomed to ordinary investors including myself. but the three fund families dominating this market, now control a large and growing

share of all shareholder voting and for various reasons index fund families like the proxy advisors have often supported shareholder proposals advancing social and environmental objectives of another wide with the interest of the average shareholder. and in some, to dominant form own proxy advisory firms enemy three passive index family would extraordinary sway the government's both publicly traded corporations in the united states. and low advice to dictate process of a proxy in light of this reality. the 15th bill lives with his hearing and invited direction of the several warrant as i discuss in my written submission. i applaud the committee for tackling an issue vital to the american economy into workers retirement savings prayed and i welcome your questions and look forward to working with members and staff on this important

subject and thank you mr. chairman. >> thank you and you recognize for five minutes. but we need to let mr. mueller share your microphone if yours is not working. >> in the boxing move okay. >> thank you and he recognized five minutes. >> ranking member thinking and i think you for members of the committee think you for the habitation and i hope that she lighted by section eight no longer shareholders at large and my observation to offer my experience comes from public companies against small and on securities for governance and the activism freighted today and my constituents capacity is survey outgoing a few challenges of rule 14 and ideas chose everyone shareholder democracy rational valves, no right is

limitless and for example if i have a seat on an airplane might have right to hold my fellow passenger passengers captive and in individual buy microphone and billboard costs a statement for $2000. but in products without represents 000002 percent back to the average s&p 500. [inaudible]. is broken based and it doesn't have to be this way be healthy shareholder engagement around the world is much higher threshold. challenge number two, rules to complex to objective and easy to manipulate fcc is issued interpretive items to 18 over the last two decades and is bulletins changed with each new administration and the guidance contains exclusions and highly suggestive framework that forced the company to provide us like to play fuzzy standards that as

a result transcend ordinary the fall short and significant or insignificant and insignificant letter brought impact just limitless one to deeply artist the right to have the answer can only be known to the beholder encompassing has a cousin across several 1488 is unusable how valuable is it to speak an average shareholder and figure out how to submit the proposal. professional activists with elements of taught individuals often times not shareholder these professionals effectively borrow shareholder stake together from undefended or the control the process from start to finish and not uncommon for the night shareholder to navigate to the company same time and this means that the church for proposal is misnomer in reality the activism proposal. challenge number three, a proxy valley is not an efficient place

to hold political referendum 1488 history cavities annual meetings into political episodes and for example this proxy sees multiple companies have to promote the dei will not shareholder will abolish it marginally can proposal increasingly polarizing issues company consult the toughest regulatory questions rated for example proposal store sells hammers and nails may statement on reproductive rights and in parks positional geopolitical issues in china and credit card company unilaterally formulate consult regulations to be clear these are critically important issues of over really talking about three questions in a cummings annual meeting of the rights to address these issues in the company the situation service defective regulator. shareholders of large have connection to the company number four shareholder proposals and

companies ornaments amount of energy to addressing proposals think they hundreds of employers to courtney engagement strategy and what weather it would jeopardize legal meeting on disclosure predictions and proprietary employee information reveal competitive strategies. reducing the extent of the proposal dollars and cents simile does not capture the intangible cost rated as the alternative so with that system that is three quarters of a century old, time to rethink the process i think are three essential options, and option one role significantly revamped and had a minimum the ship apartment from her apartment would be raised but he could also include modifications like fcc getting out of the business of taking no action letter fcc shareholder relies upon the inventive or exercise their fiduciary duty 5148 everything cavities but struggled with this personal shareholder process

given that it is easier to be slighted on fire at the epson fnc and option number two, eliminating 48 and decide what the subject matter which is actually house originally seven to operate and option three more and what we would describe as private ordering and keep 1488 from families that shareholders decide how 14 a should be applied and i'm not sure i know which answer that is medically living with it does not in the intercept that investors will ultimately hurt the companies and shareholders and thank you again for the opportunity. >> i yield back. >> you recognize, for five minutes in a chairman help them ranking member waters and members of the committee, thank you for the opportunity to share my observation of life 14 day fcc shareholder proposal rule would be revised. my observation which are my own

and on behalf of anyone else based upon their five years as a securities or group government lawyer working with a wide range of u.s. public companies in addressing literally thousands of shareholder persons. will 1488 is highly consequential when he was companies and all becoming shareholders as well as u.s. economy and under the rule a shareholder can require a company to include the share holders proposal and supporting statement in the companies statement. thereby allowing all shareholders to vote for or against proposal predict as chairman help acknowledgment this was first adopted, the rules to provide access to companies proxy for a proposal that is otherwise proper under state law and over the rules taken on life of its own detailed eligibility and procedural provisions, and 13 substantive basis for excluding

proposal on the company's proxy statement. and if you company believes that shareholder proposal does not satisfy the rule, and wishes to exclude the proposal for the proxy statement, the burden is on the company to submit no action request for the fcc to handle the matter in court. while believe that the shareholder proposals have and it can be used, shareholder proposal landscape has changed dramatically over the past ten or 15 years ...

resulting in uncertainty and increase cost to both companies and shareholder components. in addition proposals are increasingly crafted by special interest groups focus on neural policy issues and specific outcomes. for example group that calls itself the shareholders rights group include some actual shareholders but also includes investment advisors and consultants who handle most of the shareholder process for their client. esu guns for hire. sixteen members of this group account for more than 40% of all shareholder proposals. the role of the proxy advisory firms can't be overstated shareholder components typically cater and structure their

proxy -- make their proposals to comply with proxy advisory terms mean the proposal is often a façade for the true objection of the component. as discussed in hearings on the subcommittee before capital markets the objectivity is easily questioned. proposals made more work for them. the proxy advisory firms their voting decisions not subject to any regulatory oversight do not have fiduciary duties for shareholders. the particulate diverting key employees key executives and directors and their normal work. as discussed in my written testimony shareholder proposals concurrent work streams that

occurred during already busy time of the corporate year. given all of these consequences and costs, one has to question why single shareholder owning shares with the value of $2000 could initiate a process imposes significant costs that are born by all of the company shareholders. in light of these dynamics the case for reform of parole 14 aa for regulatory oversight of the proxy advisory is compelling. legislation using the abuse will serve the interests of all shareholders will help to maintain the business focus thank you very much i look forward to your questions for a quick thank you sir. you are recognized for five minutes of your oral presentation pick a morning chair here ranking member waters, new york and other members of the committee but thank you for the opportunity to testify today on the importance

of shareholder proposals and engagements these tools help protect the retirement security of new york city teachers, cops, firefighters, nurses, there are also an important foundation of freedom to invest but is bolstered capital markets in decades by the sponsors of today's proposals are seeking to cut these modest tools for accountability align corporate ceos to run roughshod over shareholders. as comptroller of the city of new york to serve as investment fund trustee adversities five while fund managing $300 billion on behalf of over 700,000 current retired civil servants. my fiduciary duty is clear to safeguard their retirement security for many decades to come. or not day traders were long-term stewards companies and markets worldwide strong corporate governance and risk oversight are foundational

healthy companies, healthy pension funds healthy capital markets. governance legal operational, environmental workforce and reputational risk all of a company performance and shareholder value. of course they do. it is our duty to weigh those risks shareholder proposals and engagement are among our most effective tools to do so over time shareholder proposals define modern government strengthening our pensions fund and broader capital markets up or consider clawbacks after the financial crisis our systems filed shareholder proposals urging stronger policies. at wells fargo are 2013 proposal led to a tougher clawback policy used to take back $60 million from executives after the fake account scandal or consider insider trading in 2021 we

brought shareholder proposals that highlighted concerns we had about plans of abbott labs the amendment to protecting all shareholders from insider trading. other reforms such as stock option expense in an advisory again shareholder proposals and were later codified. another example shareholder after boardroom accountability project. independent researchers found proxy access has led to improve performance of the companies where it was adopted i now broadly across the market. most of our proposals are resolved through engagement. in recent years for example we brought proposals of several u.s. banks for disclosing the ratio of their fossil fuel financing to clean energy financing. simple disclosure, useful for

all investors jc morgan called an excellent example of ongoing engagement pragmatic and reasonable requests can accomplish. at starbucks prompted by reports of management interference with employees rights to organize the union, which shareholder proposal and commitment to workers rights. 52% of the votes of all shareholders starbucks commission and disclose the assessment. other shareholder proposals haven't investor risk including excessive drug pricing and addictive opioid, or road safety, online child safety at tech companies. the proposed legislative changes could block every one of those. has made america capital markets the envy of the world. they would lead to a world with more insider training, fewer protections for investors, workers, consumers and the environment more relatives of

the ceo on corporate boards. it is no coincidence this comes at the very same time are seeking to evade accountable about re- evaluating the have a read shareholder rights. tassels proposed a $1 trillion in pay package enabled by cronyism on their board is the most visible example. these proposals would harm our teachers, our cops are firefighters and or nurses on behalf of billionaire and ceos more broadly they would weaken the united states economy. as fiduciaries or cleared to protect the financial security of our beneficiaries with the help of our market is essential. shareholder proposals and engagement strengthen accountability and ensure u.s. markets remain the most trusted and resilient in the world. the set screw that up. thank you for the opportunity to share my perspective.

i recognized myself for five minutes for questioning. sarbanes-oxley have significant impact of public corporations and a proxy statement by increasing their regulatory requirements for disclosure. i'm shareholder access. together these two laws of journal costs, increase the length and that statements expanded the disclosure oversight process and fundamentally change much of the shareholder access to the proxy system. likewise not rescinded 2003 safe harbor for investment managers using eight proxy advisor to be off the hook for the responsible in voting by delegated that authority to an advisor that's been withdrawn. on top of these other changes led to this exact costly process. and, to the comptroller's point

this is not about raining executive compensation. dividend policy, that's all i think aptly in the realm of what should be for access. i put out my ecstatic house rules judicial the change in the process the process since i've been involved in corporate finance. i been consistent by the s&p 500 since 1980 my first full year in the financial business ibm procter & gamble the proxy in 1980 for ibm was 26 pages. procter & gamble 12. in 2020 ibm proxy was 83 pages and procter & gamble was 85 pages. mr. mueller, let me start with you. as you see these changes but

outlines all the reasons why statutory and regulatory, would you say that length of proxy statements -- michael doocy the primary driver for that link in the proxy statements over the past 45 years question what's a top contributor do you think? let's thank you it certainly three things certainly the regulation that you mentioned. but i think there are two other factors going on one is good what is bad. the good news here is companies not to treat their approximate statement as a communication document not just a compliance document. shareholder democracy is alive and well in america the proxy statement help that purpose. but the second is not so good and again as a subject of this hearing which are shareholder proposals and proxy advisory firms. our key advisory firms have certain criteria they look for when they're making the voting

recommendations and they will only look at a filed document so preparing a proxy has now become an iss check the box compliance process adding to the link there there's a shareholder proposal process itself. whether or not a company receive the shareholder proposal they are acutely aware of what other proposals i've been to submitted to other companies. many companies by proactively saying would look what were doing on this issue but look what were doing on that issue. >> think i've always been concerned that sometimes more information is too much information and it's confusing i don't know it's plain english admiring the issue of trying to expose clarity and management compensation for example i think it's warren buffett is filled with sabertooth tigers not putting tats on the other and

i'm not sure the average investor could remotely figure out the pages and pages and pages of comparisons and a proxy at my advice to the commission is to make that a lot simpler. thank you for representing vanderbilt university today but glad your mic is working. talk to me about the economic relevance issue around 14 forgetting that change will be better for these proposals really don't have an economic relevance to the corporation business operation? >> thank you. i think it's definitely a step on the right direction i don't think we can overstate its going to be the saviors of the process. report 14l accounts about 20 examples with the economic relevance exclusion was actually relied upon. i can expect to make written remarks of the complexity of applying the standards you look at this your success rate of

economic relevance standard for background it allows you to exploit a proposal with it relates to 5% or less of a company's operation. >> thank you mama improves her testimony was quite well done i yield back and recognize the ranking member the full committee from california as waters for five minutes. >> quick singular which mr. chairman. mr. landa jar fiduciary which means you legally have to act in the best interest of the city of new york over 750,000 servants will work or have worked for the city. i want to get your take on developing a matter you made it to shareholder value and shareholder rights. as you may have read, president trump has secured over 10% equity state and intel. the great american chipmaker. as part of this deal president trump has promised the u.s.

government holdings and intel's promise the u.s. government will vote with intel board and according to management on all matters. as a fiduciary seven and 50000 beneficiaries if you were to own 10% of any large company especially one that apparently has a management and governance issues that have caused it to lose out to its competitors, or do forgo the opportunity to exercise voting rights? what's thank you ranking member waters of course we would not forgo our responsibility not just our right to exercise or voting power if we were 10% of shareholders. i think what you said about the beginning of the hypocrisy being exposed here to be more a form

of crony capitalism than the president deciding that any clear rules, without a role for congress are guidelines, when the u.s. government is going to take a position in companies and then say, as you just said management can do whatever they pump there's 90% of the other shareholders and intel are small investors who now been told u.s. government going to take a very large position of the management do whatever they want. it will erode independent shareholder governance and accountability of the foundation or capital markets make it hard for funds like ours to invest in public trust and confidence really risks the retirement security of small investors in beneficiaries like ours on the broader independence of our capital markets and their accountability to shareholders. >> continuing on president trump is supposed to be acting in the best interest of the american

people. it's a prudent and financially responsible to blindly go along with intel management on for example providing corporate perks private jets are year-end bonuses? as you know these are the kinds of decisions at intel board and management are responsible for. what would stop them from rewarding their failures of intel's largest shareholder's vote list? >> the whole concept of shareholder governance is that on the board there will be some independent shareholders some interest are aligned but not all interest what is appropriate for ceo compensation. how it's supposed to be structured how compensation will be deferred exercising that

responsibility to present a size or take a large position and give carte blanche authority to its managers doesn't mean by crony capitalism on some of these boards you have that relatives or former business partners of the ceos. what you need as independent ist members looking out for the interest of the much broader small diverse set of shareholders on the steps the president has taken that intel jeopardize that. >> thank you very much what i do not get is this, why is management with the independence board think shareholders are not interested in having the best results? that they are responsible for the fiduciary concerns of the

board why do they believe somehow they are not in the best interest of earning profits for everybody? do you get it? >> yes, this is an important debate there's room for comp and board members but shareholders want good returns at the companies we invest in all of the proposals that we bring are designed to achieve that predict ashley's time has expired the gentleman from michigan who was also the vice chair of the full committee and former chairman of the task force is not recognized. chairman hillis got a market. my family business generation is brought up. i'm glad not a publicly traded company.

not even has the same fortunate position. oh did think the committee and chairman help to highlight the abuses that happen are the leadership former sec chair and push eight social agenda ultimately harmed a publicly traded companies and their investors by some estimates under the biden run sec. the environmental social and political proposals grew by almost 60% i'm proud of the work of the sg working group as you just noted and what we had done. many of the issues the exact issues we talked about earlier today were explored by that committee. last i think it's crucial that committee continue to explore and hold proxy advisory firms

accountable the outsized influence have harmed the shareholder process the proxy advisory firms barrett none of the consequences their recommendations have even fought against exact proposals when it applied to them that they encourage should be applied to other publicly traded companies. they operate without sufficient transparency to become the de facto standard settlers for corporate governance policies in the u.s. as chairman i was happy to see them testify before our oversight committee last congress i think we could continue to hold them accountable and encourage them to be more transparent especially state navigate conflict of interest in the firm's they supposedly serve. mr. kamala and i want to start you a lot has happened since the first time he came in front of the committee in 2016 for the issue of proxy voting and shareholder proposals has become somewhat of a political football to say the least as shifts in

policy have flipped back and forth. how was the volume and nature of the shareholder proposals changed over the past decade? are you seeing more proposals focused on specific social or political issues? we mount the curb some of that as i do think the regime change has happened. has made a difference. in terms of how things have been received. i talked about in his opening statement we have seen up until recently a substantial uptick in the number of social and environmental proposals i started tracking this 15 years ago, there were still a fair

number of them but they are much smaller percentage. >> it has really exploded. >> wright first testified on this committee on the subject matter specifically in 2016 i could say it note shareholder proposals got the majority shareholder votes overboard opposition at the fortune 250. that's list shortly after that you started seeing more of these and that reflects the change in voting patterns from the proxy voting advisory firm with a pattern for the big three. >> passive index investors have been brought up or at least alluded to. they seem to scale back some of the esg proposals the proxy advisory firms can swing approximately one third sometimes of those types of votes as a committee we discussed bills such as the index act and my empowering in g shareholders act as a solution

which would deemphasize their influence but should large brokerage firms continue to move towards an empowering and individual investors? so think that's a good idea. the uptick will not be huge from something like that mirror voting introduced does on them. it's more and make written inman testimony on the paper i wrote last year the cuts we will follow up i want a last moment i'm going at the follow-up in writing. i wanted to know resource wise the impact the proxy advisory firms have and we will submit a question. what to talk about toyota in particular yelled back up at the jump was 76 by the gentleman from new york is now recognized. >> thank you, mr. chairman. and controller lander it's always great to see you.

especially here in washington. while the other side continues to rail that corporate disclosures and shareholder input on subjects like corporate diversity, claim and political donations are woke idea have no connection to the companies borderline they fail to recognize these subjects are about investment and market risk. as head of the new york city pension fund, one of the largest in the country, don't you want all relevant data and information about an investment? >> absolutely. there's simply no simple line for him bette vester in thinking about what the risks are at a particular company. you worry about reputational issues you worry about leadership and will it change. is he broader regulatory structure in the industry going to shift?

there is no neat line that is what it means to be an investor. all investors are trying to get all the information we can. assess the range of risk and of course some of them are shifts in the economy or the economic sector but they are legal per their operational, they are environmental. they are workforce with these proposals do is bring more information and transparency so we can invite the risks effectively. >> in fact isn't it your duty of the fiduciary to consider all material data risk and opportunity relevant to? here's what we need to know for a company sometimes it will tells directly and we can do it through engagement. often we file a proposal and then the company works with us as i mentioned for j.p. morgan chase. sometimes you bring a resolution that helps provide the transparency.

>> and as eight fiduciary isn't it true your main responsibility is to secure the strongest risk adjusted return for your beneficiaries? >> my fiduciary duty is to secure the strongest risk-adjusted returns for my beneficiaries in school crossing guards risk-adjusted is what is key there what investor is doing all the time is assessing risk, how can you do that without all the information question. >> thank you with that, controller lander you lead our city's pension fund. the new york city pension fund has filed resolutions for decades on issues with climate change, diversity, human rights, and political spending. as head of our cities pension fund, why is your philosophy that you in the pension fund to use that resolution approach?

do you believe it's consistent with your fiduciary duty as chief financial? she always start from fiduciary duty to achieve maximum risk-adjusted returns for our beneficiaries you wake up every day response over the retirement of hard-working people that make our city run. it's easy to keep that in mind. give some examples in my testimony company to got them better trading risks. that's a thing were going to look out with corporate board diversity has been proven through independent research that bloomberg and others have done having a more diverse board helps you see the broad issues facing our economic sector better and improves financial returns the same is true for proxy access to nominate directors. that is what we evaluate all of the effort to evaluate risk art done to improve the risk-adjusted return. >> have you found all parties to

be responsive to this engagement? >> most of our proposals are resolved through engagement. i gave the example of j.p. morgan chase note small company who last year agreed, after he filed a resolution with them asking, seeking disclosure of the ratio of their fossil fuel financing to clean energy financing. they engaged with us and agreed to start providing that disclosure we then withdrew the proposal, it did not have to go to the ballot all investors have that information. >> based on your experience so far, what you think my colleagues on the other side of the aisle and their allies think the maga movement are focused on limiting shareholder input? >> i really don't understand it for once upon a time republicans were defender of free markets this is an effort to erode them and give more power to corporate ceos at the cost of small shareholders thank you yelled

back. quicken gentleman simon six by the judge of her mist from oklahoma and chair of the monetary policy task force is now recognized. >> think it mr. chairman beginning with you, there is broad consensus that reforms need to take place and shareholder proposal process. how can we make necessary changes while projecting the legitimate rights of shareholders engage in good government investment governance. what seems like you to the last part? >> how could we make the necessary changes while protecting the legitimate rights of shareholders to engage in good governance? >> not limiting any shareholder rights. we are trying to add boundaries to make it an orderly process and make it focus on things that are important. not things that are just political referendums. whether or not a social policy

is good or bad. we really need to do is to focus on this would bring value to the shareholders. >> let's focus on the relevance exclusion the broad language has rendered the exclusion almost meaningless mr. copeland would standard be more workable would be helpful in limiting that we are truly relevant i argued in my testimony to codify materiality as a requirement for the sec we had sec commissioner

in the last administration who is arguing rules did not to be material at all got the claimant disclosure rulemaking. perked up and refocus my time on this command strengthen capital formation. discourage companies from going public due to compliance costs. mr. mueller how to be increased with corporate governments regulatory framework. >> the good news here a lot while in the long-term, public

company reporting that the advisory committee act would give public companies a formal avenue from which to advise the sec on the practical effects of their rules, regulations and policies. this idea has bipartisan support would help prevent the regulatory whiplash that we have seen through the sec between administrations. >> a judgment yields a judgment from california mr. sherman was also the ranking member of the capital market subcommittee. is not recognized. >> in god we had shareholder proposals. helps to have the norm of independent directors have annual elections for directors. the average russell 300 company

gets a shareholder proposal once every eight years to were not st overwhelmed by all of this. mr. copeland and ms. mueller and say we should meet these issues to state corporate law. what an outrageous attack on shareholder power. you've got 50 states. and so and delaware it says no to a truly dollar compensation package you just go to texas. but wait a minute, texas might limit you to a trillion go to wyoming they will do 2 trillion. you know where you can go if you need 3 trillion? you incorporate the cayman islands. and look, i stopped the job of their legislators to police the national capital markets. and if they see 10 or 20 or $30 million of revenue for their state why shouldn't they accept that in order to make sure elon musk is to join and said the

1 trillion that cheap people in texas might limit him to part were told there's only two firms that are providing this advice. so, we should have more and we do egan jones is creating one. i would like mr. copeland pointing out these are not just the get voted down. moved recently over these past and the chronic capito's do not want to be disturbed and the power. this is not about companies or will not publish a 93 page document is to be 28 page document. and others should not provide dea pose who they should not decide esg policy. who should decide that? crony capitalist?

they focus on opioids is only been a shareholder proposal that passed and new varmint that would've been shareholder value and wouldn't save thousands and tendon thousands of lives. we are told now by the chair and simply illegitimate we are told by others we have to be in ebenezer scrooge investor which country the capitalist told you have to emphasize profit over the survival of the plan? should the shareholders decide that? not just earnings-per-share. there was a proposal at a company considered the most

valuable technology the keys to the 22nd century the keys to the dominance of the world. you have a good shareholder value that would vote for? many good a policy. a fourth congress will have a role in developing setting up. the operator clearly going to have a role as well. and of course shareholder stating the ability to weigh in on the issues had not just limited to managers who indeed have much more short-term personal interest those that need to be figured out. >> the corporation can hire whatever law firm they want without criticism. they can devise a policy without sharing it in advance with the other side.

should shareholders be subject if there is a battle between management and shareholders, would it be a fair fight? or should we have rules as to who you can hire if you are a shareholder but no rules you can hire as a consultant to precook something to point out the sec already rules for management 68% of the time. >> we should be changing the rules to allow more shareholder democracy. think mr. mueller pointed out how complicated these rules are. we should make them simple and allow shareholder power. i guild back. quickly gentleman yields a judgment from texas mr. sessions is now recognized. >> thank you very much want to walk on the panel that we have today you have come to washington, you knew what existed before you came up here and that is the difference besides only politically but our viewpoint at the marketplace.

we learned a long time ago certainly has objectives. it also has outcomes. the outcomes that i follow by different number shareholder proposals were approved. yet in the past year of these proposals many of these proposals collapse with no environmental proposals meant only for social proposals seceding. generally speaking, i have heard you and the panel say they think the big three the direction of the outcome could you discuss that for me again please?

cooks all three of the index fund families of black rock and vanguard reduce their support for the environmental and social proposals. there is the bubble op and they pulled back the proxy advisory firms. i do think have done its policy that's a political not so much economic. >> that are economic imperatives. when black rock is facing investigation some state attorneys general they are seeing advertising campaigns heard certain market share et cetera they relay some of this. i think a lot of it is there is a different enforcement environment. there's a different rulemaking environment. sometimes how the performance in

the marketplace worked. don't just say tesla the selling of these proposals based on politics did not work the way they thought it would. on executive pay last 25 years. it's a strange fiduciary obligation the comptrollers asserting here or that's part of the problem. we need shareholder oversight per week oversight for people of skin in the game that are at long term thinkers annotating significant states and company sacral activist investors saying we are long term with the entire market the passive index on the same way. why are they well-positioned to be dictating this even elected

politicians. >> if you could address for a second the impact we received feedback as members of congress may 10 board members. could you tell me what you think they have a feeling about, having these in essence three big companies, three big asset manager groups to drive the people and their agenda? cooks every company is going to have accounts that companies are not engaging with the shareholders. they are during the season, off-season they are always talking and receiving that feedback. i think companies welcome shareholder feedback. i think that needs to be clear too. >> yes, ma'am i'm talking specifically it's driven by these asset managers that are attempting to drive what might

be political ideas as opposed to the necessarily economic. cooks focus mostly on the proxy companies feel it from the proxy advisors a little more defiantly and acutely than the big three you're certainly right each of the big three have policies that apply those the companies evaluating what is going to do in the position is going to take the have to take all that big stakeholders each one in each policy of the proxy advisors going to have to take into consideration each of those in addition to the requirements and regulatory environments. >> thank you, mr. chairman i think this a panelist we've gone across both sides is answering a lot of important questions. i think them i think that chairman i yield back to judgment from new york is now recognized. >> thank you and welcome to washington d.c. you know i'm sitting here listening to the questions and i've been thinking why are we

here today? i think we are here today because republicans think it is bad shareholder companies get to decide how their company that they own, operate. they are upset because some shareholders of some companies choose to emphasize things like the environment, like diversity lgbtq rights, different studies have been done on the companies that undertake environmental, social and governance initiative. i've had the opportunity to talk to some of the ceos and others. it's a why do you do these things? often what they say to me it's good for business. it's good for their bottom line. that is why they do it. when you know, here we are and we continue to focus on everything else rather than

confronting the president of the united states gross mishandling of the economy and i have got to tell you i never expected to see the day were a republican president is taking 10% stake in an american manufacturer on dubious legal authority. but you know what surprises me more? that my republican colleagues in congress who say they are for free markets is entirely silent on this issue, if not supportive. that's not to mention donald trump's trade war against the world. the economy is slowing. prices are increasing the unemployment rate is rising. countries around the world are no longer sending us packages postal shipments are now down 80%. my republican colleagues could do something about this if they

demanded a vote on repealing the tariffs they could sign my discharge petition to get a vote on these tariffs that raises the taxes on american families. that's a context for today's hearing by the president wants to bring a proposal to republicans in congress to look the other way while arguing to say how their company is ran. my college on the other side of the aisle, i believe what they're trying to discern esg into a bogeyman. but, want to ask you to clarify for the american people. if the shareholder proposal gets a vote, does it only need 10% support? yes or no?

>> no congressman it needs a majority. >> more than 25%? >> more than 10% i'm sorry more than 25. >> more than 40%? what's more than 40% big. >> i'm shocked. so it needs at least a what? a majority is what you said question. >> is a 50% plus one. >> oh eight majority to move a proposal. what are the demographics of the shareholders? are they young left-wing activists the main holder of capital in this country? >> they are not. [laughter] okay. now, the shareholders are disproportionately the founders and senior managers of a company risk adverse institutional investors and working americans interested in saving for retirement rather than culture wars would you say that better describes these individuals are? >> yes it does.

okay with the little time i have i chaired the ranking member of the house foreign affairs committee and i am concerned they are making moves the republicans are making news and backfire on us because europe is actively making itself more attractive to global investors integrating its financial markets and rolling out new reforms to deepen market access. for example the european commission even re- banded the capital unit as eight new savings and investment. to channel more private investment into eu markets. so, my question is if we hamstring the united states by undermining that rates won't pension sounds like dear cities look other places and go overseas to put their money? >> if we allow this to be adjudicated in 50 different state courts we will see much less investment in u.s. capital markets. >> a gentleman's time has expired i know it recognize my

cell for and it's good to hear my friend from new york extolled the virtues of a business and capitalism but maybe he could impart that wisdom on his friend mr. zohran mamdani maybe he could learn from you. so, let's be clear. allowing a small group of left-wing activists to hijack the proxy proposal process to push social, environmental de ir political objectives totally unrelated to the core business of a company does not advance the cause of capitalism. it undermines capitalism. it corrupts capitalism because it results in the misallocation of resources of the company. it undermines the profitability of the company. it hurts the shareholders. it does not advance the value of the shares of the stock, it hurts the value of the shares of

the stock. that's what we are talking about here today. let's go to mrs. keel. you have seen this in your practice. what is the cost in terms of time, resources, legal fees of responding and engaging with these petty political shareholder proposals? >> i'm happy with the intangible costs are which is deciding whether something is substantially important. a lot of time these proposals will been already considered by a board and it's limited that's a cost to determine that in and of itself. you'll have to decide whether it's a compliance proposal. we saw a lot of illegal d4 station and the supply chain proposal. next you have to ask. >> avocado supply chain? this stuff is so absurd. does any of this advance the profitability of the enterprise? >> have not seen the financial analysis. >> is not about what's good for

business it's actually trying to hijack and undermine the business. it is an attempt to politicize the business totally unrelated to the mission and core mission of the business. mr. mueller, how is the interpretation of significant policy issues evolved over time? has this evolution contributed to the use of shareholder proposal process for it now to pick you to carry ends? during the administration. what we talked about is totally divorced relevant to the company from the shareholder proposal process. it's important that many of these proposals are being cited as good examples for corporate governments proposals. but if esg matters are good for the companies the executives are pursuing that they do not need the cost and the expense of the shareholder proposal to tell them how to run the company

best. >> explain how the determination what is a significant policy issue has changed over the years and why that shifting interpretations are harmful? >> the shifting interpretations are harmful because they really introduce cost of both sides. it makes it hard for shareholders to know what is the proper proposal to submit and it makes hard for companies to say do we have to fight this at the sec or should we put a proxy statement? >> what isn't the rule 14 a 855 which is supposed to exclude irrelevant proposals and all of these proposals are totally irrelevant to the management of the company. why is that not more frequently used as the basis for shareholder proposals? >> that's a fairly straight although it's unclear. there is an exception that says it's significantly relevant or important to a company. you get some examples we saw

four that were successful related to human rights in india, sugar supply chain, puberty brought blockers in the sale of the abortion pill what wassuccessful in getting them excluded. religious discrimination, indigenous peoples rights it. >> example you give about a business of selling hammers and nails and have a proposal at reproductive rights. this stuff is out of control. we need to get rid of the politicization of business is not about capitalism. let's be clear this is about hijacking capitalism. it's about politicizing businesses. we've got to get rid of this rotten stuff we have got to get back to actual capitalism so is shareholders can get a return on their investment stop and get politics out of this so that

shareholders don't lose the returns they deserve. with that i will yield and record as a gentleman very scott. >> thank you very much for chai. you know the stock market of the financial system. went to elementary school in new york. in the class project in the sixthh grade doing our own research and purge the stock new york stock exchange and by stock. i've been buying it ever since. i can tell you this proxy

advisors independent research. and recommendations that allow to to assess responses to corporate government. and make the investor have some sense of protection? that's all we are talking about here. so without proxy advisors what challenges, do shareholders face? analyzing thousands of proposals. during the proxy. quick small shareholders simply would not be able to have

information tobl assess the riss they are facing them both both their interest at the kind of information the proxy advisors give. let's remember these rules come from that creation out of the greatt depression and the stock market crash specifically to give small investors the ability to company invest their money in the stock market and getting the information that they need is a critical or small investors like you and many others to be able to engage investment confidence. >> i ame glad you make that pot that proxy advisors are not dictating outcomes but they are empowering investors large and small with information they would otherwise like and need. that's all it is. critics argue yield outside

influence, address this. but is it not the case that their recommendations are just that? recommendations. these investors still make their own voting decisions? >> that is correct. we put all our proxies at u.s. companies. we subscribe to iss and glass lewis to gett information my tem renew that information as we make our independent decisions their advice is just advisory. most of the time they side with management when there's a difference between management and proposal. they are advisory it don't don't dictatepolicy to the leftt

and the vast majority of time they are advisory. >> mr. landers what barriers do entry exists for new proxy advisory firms and what can congress and regulators do to foster more competition without undermining the independence of the advice provided questioner. >> this is a great question i think it will be a great topic for the committee too explore hw to encourage more information as was mentioned some new firms are coming onto the marketplace i do not know that we will subscribe to his service but of course he should be able to provide and give more information. but the answer cannot be less information for shareholders and investors. it's got to be more. >> thank you very much appreciated.

>> a gentleman yields back i know myself for five minutes. for many small and medium private companies whether the benefits assess the public. the risk of compliance. as we've seen in recent years a shareholder proposal process can be dominant by small group of activists investors advancing niche c political agendas have little to do with long-term creation. at the sameer time proxy advisoy firms wheeled outside influence over voting outcomes and operating with limited transparency potential conflict of interest. these dynamics great uncertainty and costs amid public markets less attractive. so can you explain why the existence of the radical shareholder activists and proxy advisory firms can be a deterrent for small and medium cap companies? certainly. at the end of the day you got

activist forces empowered by an sec rule that are telling you how to run your business. one of shareholder voting rights is not to have many democracies you don't be an expert it's hard for the political process to work efficiently. it is good we have a representation here. this is not a body that's known for its efficiency. businesses need to be efficient. if you are trying to run a business we want them to come to public market it's a great way to allow members to get liquidity. it's a good way to allow everyday people on the street to get a piece of those returns. we are make it harder and harder for these public companies to do that it hurts the average investor out there as well as

the company's returns themselves. >> sorry. as we have seen in recent years, the proposal process can be overtaken by activists. many this politicization undermines the very purpose of shareholder oversight. mr. muller, how do you distinguish between a proposal that's legitimate tool for oversight, one that's an illegitimate tool to make a political statement? >> certainly corporate governance is the relationship between boards and shareholders and we talked about some of the good corporate governance shareholder proposals based on the proposal start interfering with our company is running a business, not just asking for information about that, but seeking to dictate what actions

they take, whether the company is pursuing a certain climate change strategy or not. and remove that from relevance to the company business, those proposals are an activist proposal. >> in recent weeks the u.s. district court for the western district of texas entered preliminary injunction against the texas law which would bring transparency to the proxy duopoly by requiring these firms to file disclosures when their services are based on nonfinancial factors such as esg or di considerations. recommended recommendation provide the conflict across clients. mr. copeland, what benefits do you see as a result of this legislation if implemented and how can transparency bring balance to proxy advising? >> i think it's valuable to have transparency in this

market. at the end of the day, we have these voting rights because of agency cost, the people running the businesses aren't necessarily going to act in the best interest of y the shareholders. the proxy advisors have more agency cost be to ultimately, i think a federal solution would be better. but it makes sense that in the absence of federal action or legal contestation and withdrawals of various federal action and the states willing to stand up for it. corporate governance should be a astate-level question. disclosure, this is what my law professor called the genius of american corporate law. disclosure at the federal level, substantive rights of the state level, this has worked, this is why we dominate world capital markets. all of the trends are undercutting the secrets of that success.

>> thank you very much, i yield my time back. the gentleman from illinois, doctor foster, is recognized for five minutes. >> thank you. i'd like to start by pointing out, lengthy proxy statements as pointed out by cherry hill, not necessarily intrinsically bad things by themselves. i looked at the companies you talked about the length of the proxy statements has gone up by several hundred%, the market can't but the ball had gone up well over 1000 percent that of the same time. it's not necessarily a trend that's out of scale with the increased complexity and the size of the operations. also, in the future, everyone is all the shareholders will do what we already talked about. to look at them at whatever detail they are comfortable with. it will be possible to get for the average shareholder to make a decision on the basis of the

information they get. i think the same point applies to very complex regulations will be able to use ai to tolerate those regulations because of the ability to choose the complexity. also i'd have to say that i'm in favor of making b& when i looked over the list of the requirements to bring forth the proposal, the point you have to be a long-term holder is fundamental. and very concerned about the rise of the stocks completely disconnected share price from any plausible future. that's generating huge consolidation. not only game stop tested it. this is not an investment.

another point is that the political ideas and financial impact, you can't really hide from hit. we see that the company has started 50 years ago. when our country behaves bad, we saw this president bush got us in to the war in iraq by telling them what to analyze. it turned out not to be true. we found he didn't want to buy american products. if you ask yourself why we are in the sixth month of manufacturing since the start of liberation day.this is not new its repeat of what happened in the first term of the trust administration, policies person to the manufacturing recession one full year before covid hit. reputational risks are real and

the company's stance on the issues of the day matter certainly to their customers of these companies. hits the bottom line. i think it's a mistake to imagine these things. >> mr. lander, you referenced in your remarks that if you look at company have some of these di proposals that it hasn't been bad, just the narrative i'm hearing erthe oth side of the aisle, could you say a little bit about the actual research of the numbers. >> thank you. an independent study, and mentioned something specifically looking at shareholder access to the company proxy to nominate directors that came through the work of the pension funds. independent analysis found that it added 0.5% to shareholder

value at the companies who adopted it, potentially adding to billions across the market. separate from that, a group of business professors at the nyu stern school of business evaluated 1000 studies and found that 58% showed a positive relationship between environmental social and governance efforts and corporate financial performance 13% had maneutral outcomes and only 8% have negative. >> i think there should be more adjustment how significant an issue it is for a feasible number of the shareholders and other simple tweaks? are there some simple tweaks to increase threshold to make sure this isn't a major issue for the shareholders that something that would be the easiest straightforward to make sure somebody submitting a proposal

has economic skin in the game to make sure their alignment of interest would be the simplest. i think there were other ideas about the resubmission threshold. thinking about whether or not significant social policy should be something the sec is deciding or something ngthe company should be thinking about is the reality is there are actually already thinking about these political issues in the optariffs, thinking about t issue deeply. before the proposals even come up. >>. >> the gentleman stands up. >> thank you, i yield back. >> the gentleman from the great state of georgia, now recognized for five minutes. >> my bill would amend the exchange act to require institutional investment managers file an annual report showing how they voted. their alignment we also require that institutional investment managers over $100 billion in

assets under management be required to clarify the shareholders are not obliged to vote every item and conduct an economic analysis that the voters and the investors asked economic interest. can you please explain the relationship between institutional investment managers and proxy advisory firms? why do institutional investment managers hire proxy advisory firms? >> because it's an extremely complicated thing to vote on all these proxy ballots. is true for a lot of these institutional investors. they don't otreally get a competitive advantage. doesn't help the investment return to be a better broker. a really large family of companies vanguards, black rocks, they have, small institutional investors s don't as a general rule or at least a lot of them don't so they need help to execute this. there's an economic rationale

they've been prodded that way by do all rulemaking in the sec in 2003 he created the demand getting a safe harbor to really i to rely on the advice. >> what is robo loading why is it used by institutions. >> robo loading is task race to discuss work and effectively outsource our voting to the proxy advisor and we commissioned a study by professor paul rowlands in 2021 that looked at this and we found a significant percentage of the market was doing this, which is why when we studied iss in 2012 we saw these preparatory shareholder proposals about 15% of the voting total was controlled by iss, instead of just taking advice from the proxy advisory firm that is handing over

making it independent. >> credit harm to clients of institutional investment managers? could it harm the overall returns? >> it could. the publication of the question is that for the individual firm it probably not because the this small percentage of the vote you're not likely to have an outcome to vote on these questions on tethe aggregator thickets hurts it imported what's doing is basically creating this rockville maryland based business buowned by the jordan stock market effectively driving 15% of the vote. >> that's huge. i will not disclose or. >> think it's useful because it

enables individuals and institutions that put the per the terms to know it's happening. it could create pushback. is a softer form approach than totally banning it. >> he talked about 15% from a german owned organization is that theoretically them with european ideas and interest and standards of the american marketplace instead of the investment managers making their own decision. >> it certainly could be, that's the risk of those conflicts of interest in all directions for the way thiss an the other big player operates as well. nvidia has a larger market capitalization yet the german

stock market owns proxy advisors that control or50% of the vote here. >> that's amazing. you have any other ideas for regulatory reforms that reduce the influence approximately proxy advisory firms. >> time is limited to go through them all but a reference in my written testimony i co-authored with david lagercrantz in 2018, they did a rulemaking in 2020 and it was partially rescinded with the administration change and had been in court three different circuits have been planning on it it's kind of a mess. which is why it would be good for this body to act. >> thank you, i yield back thank you. >> i now recognize the gentleman from the great state of ohio. >> thank you mr. chairman and ranking member. think it all the witnesses for

being here today. i just have a couple questions i want onto try to get through. mr. landers, you know many of the attacks in the shareholder advocacy even esg investments argue that these are extraneous material issues with no relationship to the company bottom line. i believe you are you strongly disagreed with these allegations that you are hurting companies efinancially. can you explain your perspective on that? >> i find it especially funny when people attack esg as not relevant to corporate governance when the g stands for governance. thought that representative

foster made this very clear the idea that if you state pecuniary, somehow you are excluding everything i don't like and only including profit makes no sense. you are evaluating risks like will there be new regulation by congress on some area that might be affected by the business we are investing in. we had concerns at tesla when elon musk left as ceo, there was no ceo. we also had concerns if he was pursuing action that would make it harder to sell eb's through action he was taking here, that is good be bad for eb sales. that's pecuniary. if there are tesla investor. so there's simply no way to draw not much the job of the evaluate this broad set of regulatory peace and operational and legal and governance and environmental and workplace isks financial

officers and blue states and written urging them to stand firm in their support for sustainability programs, finding that it also promotes long-term shareholder values. i would be interested in

hearing your thoughts on why these financial officers are taking a public stance in maintaining support for these. >> let's use blackrock for an example. in a letter to investors several years ago he wrote climate risk is financial risk. everyone knows climate risk is financial risk and choose to evaluate it as you see fit you can have uan elephant legal point of view but climate risk is financial risk you might be utility company and if there's more wildfires in your area you might be accused of causing them or you might have to move your infrastructure to address them. it doesn't seem like a complicated or political statement and yet treasures declared war on blackrock and threatened to divest or hold them accountable legally if they didn't back off of the simple idea that climate risk

is financial risk. i'm sad to say what that has led to his walk back of voting for proposals simply to provide disclosure the proposal i said. >> thank ncyou sherman and the national security subcommittee symphonies and screening authorities grab my attention when investments that threaten our national security are supposed to get scrutiny. in the case of iss and both foreign-owned companies, extremely outsized impact on proxy voting in our capital markets they haven't been subjected to the review. iss founded in the united states back in 1985 is now

geordie owned of the foreign promoted cooling for institutional investors worth trillions of dollars for the u.s. sheriff's may 10, 2024 my colleagues congressman andy barr congressman brian style urged treasury secretary janet yellen the city is review the acquisition nearly a year later picking up the pieces from the previous administration. then class lewis started in san francisco 2003 snapped up in 2021 by peloton capital management and toronto-based private equity firm. iss and glass lewis arts small outfits. they dominate 97% of the proxy advisory space influencing vote on everything from board elections tx esg mandate significantly influence

america's capital markets. where laser focused on foreign influence critical sectors like tech and infrastructure. here we properly screening foreign companies that control corporate governance in our country. could these ties and check biases european-style green mandates a canadian anti- group policies in the u.s. undermine american competitiveness. new transparency and safeguards to ensure these firms aren't advancing agendas that put foreign interest ahead of american shareholders. the shareholder proposal process under rule 14 a a was meant to give real shareholders a say in how the companies they own a run. under the biden administration in sec chairman gensler turned into a playground for activists and special-interest outfits

shoving their ideology and political crusades down the throats of companies that just will focus on growing your business raising capital. congress has to get in the game with real forms checkup ownership thresholds you have actual skin in the game and holding period. exclusions for irrelevant ordinary business modeling and slammed the door on re-submissions for proposals that keep bombing us at the ballot box all puffed up by proxy advisory kingpins. speaking of the kingpins, iss and glass lewis there 97% stranglehold on the market are the real enablers. without a shred of accountability or transparency the recommendations are really activism masquerading as advice.

turbocharging stone to break this duopoly and let free markets actually work. mr. muller, you've seen thousands of proposals up close, wise number social environmental ones exploded and why do they mostly fail and keep coming back? >> the factor here is really the advisors out there deemed representative out marketing themselves and saying, we will handle the shareholder proposal process you can sit back iland will submit the proposal and they're not just asking for information trying to list the outcomes saying this is what we've done. >> the efforts to influence the outcomes do you worry about threats to american interest or even national security. >> i do because of focusing on one aspect of the company's operation.

the management who ntalso has fiduciary duties to the shareholders to all shareholders knows the company best. they'd often already consider the issues often addressing the issues the way they view best for all shareholders. >> mrs. cuba would love to talk to you about your work at exxon. we have a large range of questions i will address for the record and i have some for you too mr. copeland. my times expired and i yelled back. >> want to preface by acknowledging them to be a little bit romantic. this conversation is really

dumb. let's just acknowledge some things i should not be debated but i can't believe suggesting they are not true. shareholders are the people who own the company's. the executives of the company serve at their pleasure, they are tasked to carry out the will of the shareholders. they are custodians of shareholder investment but they are not actually the people in charge. shareholders are not monolithic in terms of their interests, and terms of how they define value. hearing my colleagues say the only thing that matters to shareholder value, what the hell does that mean?ava shareholder that thinks accompanies free thcash flow it should go to pay dividends. maybe emma shareholder in kodak with things we should be pivoting to digital photography because you're committed to a technology that isn't gonna survive. maybe aemma shareholder in a c company who thinks we should be pivoting teds, it doesn't matter if you are right you have different opinions about value. the way the companies adjudicate those disputes is to

have a high functioning. [word?]. people who service their opinions we try to resolve them in some collaborative fashion. if you can't resolve them, ultimately you go to a majority vote. this is not freaking complicated. the idea that subfolders are more worthy of having an opinion. some voters understand what value is. i guess it's on brand for the party of january 6 but that's not the way you make good decisions. i say this not as a member of congress. as somebody who spent 16 years as a o ceo who ran a company o the minority investor. we had a bunch of other money that came in sometimes i disagreed with our investors sometimes i persuaded them to

my opinion sometimes they won, sometimes i wanted me to know is probably right more often than not but it didn't matter. our board understood and i understood that sometimes my economic interests were at work at odds with the shareholders. i could've come to washington and citizen activists of the interest of i will come here represent our nation's underappreciated ceos. i don't think it's actually way the economy works. who do you agree there are conflicts of interest like when enron collapse was a part of it because of poor oversight. >> yes. >> do you agree it's important for boy scout independent directors who are distinct from management? >> yes. >> serve as the new york nestoc exchange, so does nasdaq, it makes sense would you agree transparency in executive compensation is a good thing to

have the corporate structures? >> yes. >> do you agree shareholders should have a say in the b under the dock break actor companies legally required to act in response to a shareholder border executive compensation? >> no. >> they are not. in general companies legally required to take action on shareholder properties. >> technically no, effectively yes.

>> mrs. keough i wonder if you might like to expand on the response to mr. castillo about

the nature of the issue? >> is correct that most of the shareholder proposals technically nonbinding but the reality of how the companies are dealing with these who if you if the company were to pass in shareholders s voted in favo companies even if they thought it was a better deal for the company just feel this inherent pressure and grapple with the impact. >> how transparent is the sec no action process and are there consistent principles overdue outcomes shift from year to year? >> if i could just add to the last response, i want to note

that under glass lewis's proxy voting policies if the proposal gets a vote above 30%, not a majority, then the board is expected to take some type of action or risk having vote the following year. some of what we are hearing is not how it operates in the real world. they use vague terms that are open to interpretation. >> mrs. keough, can you explain why it would be useful to raise the resubmission threshold currently in role 14 aai 12.

>> i think to use the word shareholder democracy a lot morning to protect shareholder rights. the resubmission threshold is so important because if the shareholders vote something 9 against 1 4 what does it mean to have for the nine shareholders voted against it where we getting back on the ballot when it was very clear there was not support for this. the other thing i think i really need to think about we need to think about carefully as we inconsider to revise the standard what is it need to be substantially similar subject matter. is not just the number of the threshold, is how it applies. is a carbon copy general topic? that's something you would need a lot more clarity on. >> as the shareholder actually reads these things and tries to be thoughtful in my responses,

i think we all have to acknowledge that when we ignore the shareholders have rendered a verdict, yet it comes back with the inevitable inclination is to think, this issue must have more support than it appears to. the will i think it can kind of distort what the company should really be focused on.

>> to the procedural requirements for a company to exclude a proposal create an excessive and expensive burden, even for proposals that are clearly nonmaterial? can you explain why this is. >> there are three ththings. one would be fear of the proxy advisors. if you know a proposal is not accurate maybe they didn't have enough shares or missed the deadline, some clear per fish will they are also afraid of the shareholders themselves bringing some litigation enjoining the annual meeting. and then they yare afraid of making headlines. if you go against the grain into something different, it would be problematic. >>.

>> the gentlewoman from massachusetts, ms. presley is recognized for five minutes. >> diversity equity inclusion matters. he diversity means all people, veterans, lgbtq, women, rural communities, black people, equity means fair access to opportunity. and inclusion means having a real pathway to the american dream. no executive order from donald trump's, change that and certainly no legislation refrom republican colleagues well but that does not stop them from trying. republicans are proposing bills that would make it harder or even impossible for shareholders to increase transparency around diversity hiring and inclusive workplace is. shareholders walked ininformati because study after study has affirmed diverse change creates more money for companies. more innovative and better and faster at making decisions. diversity equity and inclusion

is good for business and good for the economy. mr. muller, does gibson value the practice of diversity and inclusion? a simple yes or no. >> yes. >> thank you. mr. chair, i would like to enter into the record this webpage from gibson dunn entitled diversity and inclusion. >> without objection. >> mr. chair would like to enter into the record this webpage from jones day entitled inclusion. >> without objection. >> comptroller landers, do you as new york city comptroller value the practice he practice of diversity and inclusion in

your office? >> absolutely. >> thank you for your expressed commitment today i want to commend you on your statement in february pushing back against trump's attack non di i would like to enter that statement into the record. >> it's really wonderful to see this type of agreement bipartisan agreement by republican and democratic witnesses here today, however, the fact remains the fiscal irresponsible policies icfrom t white house are pushing people out of the workforce unemployment is on the herise a black women are bearing the brunt of the job losses but what else is new? we bear the brunt of everything. black workers of the last hired first fired. a devastating warning of where our economy is headed. it's exactly where i wrote a letter to the federal reserve chair jerome powell telling him to say to do their job and out of the statutory mandate to

promote maximum employment and address lothis crisis for black women. but, it's not just the feds must take action, the sec must choose. do the republicans propose changes to sec osrules help or hurt transparency for shareholders? >> hurt. >> thank you. we need policies that empower shareholders and protect investors. diversity equity and inclusion matter. for business for families, for the economy, and the data supports it. high yield back. >> i want to make sure i'm in the right human, we're here to talk about proxy advisors? just making sure.

let me start by saying this. this is my stance opinion i would like to have a conversation around it. it seems to me that two proxy firms should not be deciding how trillions of dollars in shareholders vote are cast. would you agree with that? anyone disagree with that? thank you. yet today, every american thinks they're investing in the market but their vote are actually being hijacked and dictated by unelected unaccountable foreign proxy advisors. this is not, in my opinion, shareholder democracy. instead its concentrated power that unchecked and undermines the integrity of our capital market. i believe proxy liadvisors shou stick to providing what they do

best. >> they neither regulate nor dictate. >> but you would agree with my premise that they shouldn't act as shadow ldregulators. >> they neither regulate or dictate. >> that's a great answer to a question i didn't ask. are you disagreeing with my premise or are you agreeing. >> layou said they were dictati to shareholders.

>> let me rephrase it, sir, i believe proxy advisors should stick to providing research and not act as shadow regulators for corporate america. would you agree or disagree? really simple question. >> i agree. >> thank you very much. mr. copeland, would you agree proxy advisors unaccountable unelected groups have too much power and direction of the u.s. public companies? >> agree. >> can you expand on why? >> because effectively we are talking about controlling 25% of the shareholder vote if their nontransparent, nonregulated, non-american ownership. >> non-american.

they are deciding huge chunks of the vote. >> doesn't that mean that millions of american vote are being hijacked by foreign proxy advisors? could one come to that conclusion?not by the americans who actually own the shares. >> hijacked may be a kestrong word but i think the de facto they are controlling because they are given the authority by number of institutional investors. there's a disconnect between ownership rights. isn't that a betrayal of the fiduciary duty?

>> on behalf of the institutional investor it's debatable. at the end of the day, they are trying to execute execute these vote at low cost. i think it would be helpful to clarify. the sec has done this but to help clarify they're not required to vote at all.that they are trying to do this they don't get an advantage. they don't get they are sort of just charging it. >> i want to be inclear, there' no fiduciary duties responsibilities by the proxy advisors? >> aside from basic anti-fraud, no. >> very interesting. mr. chairman, i'm sorry, but i'm out of time. thank you for your witnesses,

thank you for your time.>> the gentlewoman yields back of the gentlewoman from texas miss garcia is recognized for five minutes. >> thank you to all the witnesses for being here this morning. i wanted to give a special welcome to the comptroller because as a former elected city controller and know the role of the business and i know how busy you are. thank you for taking the time to be here. i also want to personally thank you for standing tall with the immigrants showing up to court in immigration court in new york, like you have done that too i've gone to visit our immigration courts and it's just shameful with the current what the white house is doing to keep people from their day in court. thank you for that. but, this kind of silencing and criminalization of almost everything, why are we going through all of this? why are we spending so much time on something when,

frankly, all these lawyers at table could advise clients to go private. if you don't want to deal with pesky shareholders, then go private. then you don't have to worry about it. but no, they want it both ways. why is wall street trying to put shareholders out? are these companies not rich enough? >> the companies are doing well, the ceos are doing well. i thought $56 billion was an extremely eyexpensive ceo compensation. i never would have dreamed they would propose $1 trillion is it of executive compensation. but.t? >> can you repeat it i evthink everybody who's watching needs to understand that the number of zeros involved tin that when people are just worried about the cost of housing and healthcare and the cost of buying pens and pencils for the kids to go back to school.

>> this is a board, elon musk sought to pay back so$56 billio which was enormous amounts the largest ceo executive compensation never, even though he wasn't working full time at the company, which any board would expect their ceo to work full-time. for $560,000 much less $56 billion. there was objection from the investors so they read domicile the company in texas, they are seeking to prevent shareholders from bringing shareholder resolutions and seeking to prevent shareholders from bringing securities litigation if the rights are violated and now they are proposing to give him a $1 trillion payout. which i can only believe is like both to enrich him but also to stick it in the eye of every hard-working person in america. >> it's not a bad part-time job, where do i sign up? it baffles me that things like

a shareholder proposal to get a report on the use of child labor law would be considered outrageous or proposal to conduct a healthcare health and safety audit regarding employee working conditions. i've seen so many of these and the words being used in this hearing if shareholders can have a voice, then who can? if you really don't like the pesky investors, i'm calling it pesky in a very gentle dear way. then go private. there is an exception for all of this. things that are seen as harmful disruptions the economic relevance for the solution, who decides what's relevant or not? >> the sec sides with

management 68 percent some of the time when management objects to shareholder proposals. i would think of anything the balance might be tipped a bit in the favor of hareholders. to me this makes common sense. >> almost all of this is about disclosure even on di. they are already giving to the government. so most shareholders disclose the matrix he does use the idea

that that's over each minute simple investment simple information investors use. >> the gentlewoman's time is expired. >> the gentleman from south carolina mr. timmons is recognized for five minutes. >> today's discussion focuses on critical issues of transparency, what could only be described as a political pendulum swing and regulatory policy. the level of concentration create systemic challenges for corporate governance and shareholder engagement. since 2003 the fcc rule making the proxy advisors shifted significantly from one administration to the next. i want to focus today on growing and often overlooked risk the potential for foreign influence of u.s. public companies made possible by the proxy advisor duopoly.

the two firms will dispatch power with so little transparency the risk is not just economic to proxy advisory firms have clients informants governments politically motivated international organization and how transparent with relationship to the company? >> they have some relationship. norwegian sovereign is very active in influencing the dialogue they call it the wave of the proxy is not very transparent. it's hard to get a definitive answer. >> what are the current consequences of this lack of transparency and disclosure? >> i think it's hard for regulators to know what's happening. it's hard for investors to know

what's happening. it's only a couple of these. they are not that big of businesses. they are valued high but probably not just based on cash, probably based on the control they exert over the market. firms like iss not only issue proxy recommendation the also self consulting services for the same company as they evaluate. including esg corporate rating service this creates a financial incentive to issue

recommendations raising serious concerns about the objectivity of their guidance. some proxy advisor's still with advocacy organizations that align with political or ideological agendas. of the same firms about shaping and anscoring the proposals it becomes difficult to separate impartial analysis from activism. it's a problem for transparency, market and the long-term interest of american investors. could you walk us through an example of conflict of interest and practice and discuss the negative consequences that result from both corporation and everyday shareholders. >> i think one important thing to address on the influence from abroad is there incorporating european standards. in europe they have an idea of double material eavily.

do you believe the fcc has the tool it needs to address the kind of conflict of interest or should congress consider additional steps to ensure proxy advisors are neutral and accountable shareholders? >> there nswould definitely be some sort of regulation on the federal level. they fought tooth and nail against really common sense regulatory oversight which would've fahad them not make false or misleading statements. i think we need some explicit

knowledge of it. >> the absence of transparency the report involvement the severe conflict of interest create serious risk. >> i appreciate all the testimony of the witnesses particularly the written testimony. i wanted to refer first to be examples of during your testimony today in written

statements. >> in fact there are criteria that exist already slitting proposals relating to economic relevance ordinary business can mitigate micromanaging it so far. i certainly appreciate that the time expended in the issue has been raised.

if the rules exist why should congress get involved if the roles already exist to exclude irrelevant proposals. it's not required to go to fcc but come the thing that companies do so to deviate from that, there's an example afrom long time ago before my time were companies i'm just gonna notify the fcc and exclusion and they said you gotta go through the normal process. even though it's just guidance, not law. it could be intimidating to make headlines. could be intimidating to instigate scrutiny from the proxy advisors because the stakes are so high. they will fall back on the reliance on this system because that's what people are used to.

>> i can appreciate the point, just the fact that executives are comfortable doesn't feel like that's enough to justify congressional action? what are particularly concerned about, i appreciate very much with your statements but what i'm particularly concerned about is narrowing the definition of relevance where very relevant it's excluded. the financing of energy generation, i know there's a wide variety of opinions here about climate change in this room perhaps in america but don't you agree that it would be critical for a lot of investors to understand how

j.p. morgan executives have internalized the litigation risks the regulatory risk the long-term risk of how it's deciding to finance energy. >> the issue on that is that, and i can't comment on what j.p. morgan is doing that many of the other banks were already disclosing information about what they were doing with financing fossil fuel and noncarbon energy sources. the proposal was not so much about and increases its disclosure piece of the proposal was we want you to do it this way, not the way management thinks it's best to communicate with the shareholders. >> you don't disagree that disclosure itself might be quite relevant in that context. blackrock is 2021 global insurance report.

>> i want to make sure here in congress we don't decide to start excluding very rtrelevant considerations from what we need to find to be appropriate. >> i think the issue is what is relevant and and and the kinsler administration the first year that came out. >> the gentleman's time has expired. >> the delegate from pennsylvania is recognized for five minutes. >> last congress committee pushed back against biden regulators that elevate social and political agendas and material business decisions. this is most evidence of the previous sec climate roulac republicans were largely

successful in restoring materiality and the guiding principle due to disclosures the shareholder proposal process. proxy advisory firms concentrated influence function as a factor regulators for committing esg vote for shareholders voting on board decisions. it's not about being against the esg as an investment choice of individuals investors will prioritize environmental socia

factors. advising large companies with the cost in terms of the resources you just alluded to for companies to respond to such proposals that have no material connection to its line of business. lays out all the actions borne by that. it's important to bear in mind this shareholder $2000 worth of stock. it's good to have small shareholders.but when they

are putting all that burden on the company at large you have to question whether it's irrational decision. >> when the sec refuses to block esg proposal for being material. the courts often treat the refusal of the green light. doesn't combine with proxy advisors recommending yes vote through immaterial proposals to mandates of practice. >> i think when you do not get or whatever the fcc says how all the different stakeholders interpret whether or not the proposal should be included or excluded.vi especially the proxy advisors. if you were to go against what the proxy advisors recommend, there would be major consequences. i think it's relevant that there is a 30% threshold that glass lewis proposals. so they expect you to publicly address how you have engaged with the shareholders on a

particular proposal those numbers are suspiciously similar. >> to thank you. you advised companies facing lawsuits for the boards feel pressure or threatened engage with sg proposals even the shareholders have technical. >> absolutely. the real issue i would like to highlight is at every meeting. these are important topics when there's news about the tariffs or environmental ssues.

>> my understanding is, >> i yield back. >> mr. gray is recognized for five minutes. >> thank you mr. chairman. i think ranking member of the witnesses for appearing.

mr. malanda, there are some ceo who make more in a day than some of their employees make in a year. there seems to be a belief among many that that those who are wealthy and the poor could do more with less. is material for the shareholders to want to see a living wage paid to employees. to have a living wage for people who are working.

that the trillion dollar salary. more than the mind can imagine. your thoughts please? >> i will start from the people lose money unmanaged and whoever present. cops and firefighters and sanitation workers, hard-working people. who largely because they organized in a union secured retirement security. they are not making a lot of money every year. but we guarantee them this retirement security so they are paying attention to how their money is invested. and what they mostly have the right to is to make sure it's invested well with good risk-adjusted returns. they know that companies will do better if those companies have good d workforce managemen and live up to their own policies.

many of the companies we in boston have policies that they respect the rights of the workers to organize a unit to seek a bargain collectively and have good workforce management practices. for the example on climate policies tends to be that. >> talk to me about the living wage. >> all five of our funds including the police pension fund and the firefighter pension fund often vote for shareholder proposals asking companies as they did at m starbucks where we brought the proposal we had heard there were issues of workforce management they provided the

assessment to its investors including those teachers and cops and firefighters that i represent, that's all we are talking about at its most aggressive, usually the proposals don't get a majority in this one case they did it resulted in a corporate assessment of its workforce policies so investors could make wise decisions. >> am going to take it that you believe that it is acceptable for the shareholders to push inquiries that would lead to a living wage being paid to workers. >> let me distinguish at the policy level i'm a big headvoca of living wage policies broadly across the economy and advocated them for law in new york city and nationally beset as an investor i have fiduciary

duty to focus on risk-adjusted returns to shareholders so i focus on workforce issues broadly because if you have is a radio workforce and have such rapid turnover as amazon does for example, that's a risk, not only. >> when we make the decisions to pay the ceos billions of dollars that we don't seem to get into the question of how it's going to have this level of adversity as it relates to the business model that the company has. but when we talk about people who are making $7.25 an hour, some amount of money that the ceos will give to as they leave the restaurant, it becomes a big issue. we seem to think that the poor could do more with less. and the wealthy they need more to do more. i yield back.

>> the gentleman yells back, the gentlewoman from california, now recognize for five minutes. >> thank you for being here. in california are drivers custodians local law enforcement and other public employees rely upon the california public employee retirement system to manage their pensions and ensure that they can have a comfortable retirement. he one way that we've seen companies forge away from focusing on their products and services is by burdening companies do this shareholder proposal process. i want to ask my question to miss kiel, what are the steps a company takes when they receive

shareholder process? >> first they decide whether it's actually substantially implement it already, then they go into whether investors have phrased it as a particular issue they actually care about. and it will assess what is the harm that could come from this? it's a risk mitigation analysis at the end of the day. will is it going to disclose employee information. is it legal? there example of shareholder proposals that are if they were to be implemented would actually be illegal. then you have to evaluate whether it's actually going to harm the company. then there are example of proposals that are effectively trying to hurt a business. one example would be to a pharmaceutical company asking them about issuing patents or

produce patents. are cool. >> because the companies are burdened with when dealing with shareholder proposals ?that may not be relevant to the business activity. >> i think there are costs the fcc has set upwards of maybe $150,000 there been other studies that put that at the top of 600,000 i think it's actually nice to have the dollars and cents the intangible energy and effort that goes into these that's really hard to quantify. the analysis is just a drop in the bucket in terms of the focus. >> can you talk about if the histories the investors are the ones that bear the burden of the cost and consequences of nonmaterial shareholder proposals.

>> yes they bear the expenses and typically vote down the proposals particularly in recent years the proposals had more extreme more prescriptive the vote is dropping down and shareholder, large shareholders are coming to the company saying, why are we even having to deal with this? >> let me talk about another issue. companies want to be focused on delivering great products or services and continue to innovate. but when we spent thousands of hours attempting to deal with the shareholder proposal regarding whether they would go from hot plastic straws in the cafeteria to paper strauss. that's a vital time and t resources taken away from improving the robusiness and customer experience. they should return to being focused on the retirement of my constituents and not supporting

left-wing political agenda. in july 2023, iss testified that the farm does not generally conduct economic analyses before providing recommendation. have you observed anything that would lead you to believe that iss or glass lewis evaluates the specifics of each shareholder proposal at each

company. >> to take away i'm left with is that personal and political bias are what guide the recommendations of glass lewis and iss is also concerning to me that iss and glass lewis appeared to have significant conflict of interest and i wanted to share that and put it on the record. >>. >> the gentleman from new york, mr. ritchie torres. >> republicans often accuse democrats of politicizing capitalism.with a simple question for the controller, who is the most efficient b&. >> free market.

to promote the democratization of corporate governance and brings checks and balances of accountability and transparency where none would otherwise exist. the purpose of securities law as i understand it is to correct information symmetries of level the playing field between issuers and investors. >> you worry as i do that the stock will come busting at would undermine the very purpose of this verities law restrict the flow of material information to shareholders. what were the most recent proponents returns of the new york city pension.

>> since june 30 get when you return to 10.3% exceeding the state standard of seven percent for. >> $2 billion for taxpayers under financial stewardship new york city has shown it's possible to do well and do good at the same time. >> under the stock woken vesting act the word material is radically defined. sit on the cchina committee an we in congress have a bipartisan concern about rising

tensions. >> under the stock woken vesting at my proposal will not qualify. because it involves a high degree of uncertainty regarding what may occur in the long-term future. let it sink in for a moment x essential risk for the world's most critical and fragile supply chain would not qualify as material under the stop woken vesting act. is there any universe in which that makes sense to you as a fiduciary? >> asinvesting is assessing ris that exactly like any agreement would not allow you ãthe company where you were investor to assess and to close the risk.

>> the most cruel irony is that the most cruel risk the company could face is climate change or work would no longer qualify as material under the law. that makes a mockery of securities law so as a pensioner and new york city system and pleased with 10% return.i will yield back. >>. >> thank you mr. chairman and to the witnesses i know it's been a long morning, or afternoon, the proxy advisory firms mostly three index funds are driving corporate governance across the entire company. and one elected they will the turtle power. to borrow a phrase they do it with other people's money. mr. copeland, if black frog and state street are both devoting tens of billions in retirement assets, you see that as the

distortion of e shareholder democracy? >> yes. >> would you agree congress needs to explore ways to restore some voice to the ultimate beneficiaries retirees and workers instead of leaving it all to intermediaries and advisors. >> yes. >> the first amendment does all of the government force people to play take political positions but the rule though rule 14 activist shareholders are forcing companies into political speech as the price of being public. its compelled speech by another name. mr. miller, dear agree many of these puzzles are not about material business issues but about forcing companies to take sides on divisive social debates? >> yes. >> the race first amendment concerns in a test i would expand on how compelled corporate speech mirrors the kind spof unconstitutional

compelled speech the courts have struck down?>> effectively, these companies are being required to put on their proxy ballots political statements that are drafted from people like in the new york city comptroller's office. that clearly runs afoul and a lot of the health speech doctrine. there is uncertainty and how it applies to securities. books on ambiguous is the way it's operating and practices viewpoint discrimination.

>> tickets back to the idea that it's more about compelling political speech versus getting back to the basics. most just want their pensions and 401(k) to be safe. yet the proxy is diverse corporate resources diverse resources onto politics, you have the example of one shareholder forcing a company to do extensive proxy fights over issues of di or policy. >> it depends on whether it

passes. >> the intent would be. >> i think it's asking the question of maybe a good example would be climate targets. the proposals are asking companies the pizza company i ordered my friday night pizza from two to build three climate targets it's hard to see the relevance ultimately feels like an unsanctioned tax. >> had more questions. i want to go back to the idea, he both commented on the technically versus effectively with some of these proposals. my colleague on the other side technically was correct but when you get back to the board room and how it's issued in markets please expand or put a fine point on technically versus effectively. >> the companies don't want to be out there publicly opposing their shareholders. they want to be focusing on

business and not dragged into political debates. often times the vote is irrelevant. the shareholder has gotten the issue into the proxy statement and force the company to make a statement about it and the shareholder doesn't really care what the vote is, they've achieved their purpose. that's really kind of effective. >> x gentleman from michigan, you are recognized for five minutes. >> thank you all so much for being here. i just left a number of advocates or maybe my colleagues like to call them advocates, around the house in a crisis. it was powerful speeches about how terrible and horrific the housing crisis is across the

country. somehow we're going to be able to b that's not what we're doing here. then i saw, okay the president is shamelessly using his office for vast personal gain peace of a " his net worth since last year mainly through crypto currency and crypto correction. and saying this because like why ware we having this hearin? i would like to dig deeper and then i found out, anti-esg which for my residence listening environmental social governance they want to make sure their money is going to something they don't support. it's because it's funded by the big motivated donors. the fossil fuel industry.

$1.5 million from exxon mobil and 3 million from the cold brothers, has the public take that seriously when i have a community in wayne t county tha hasn't met clean air act standards in years. kids are literally being poisoned the can't develop their brains can develop if there being poisoned. say this because we are here because of mega-donors we are here to talk about this whole anti-esg tmovement. this issue to me is fabricated. but the stakes are real in regards to people having disclosure and transparency. retirement savings hard-working families are online. can you discuss the issues

here. i'm a person that does deeply care about the climate crisis. why those issues should be in the interest of investors. >> ethic of the story may be step what's being demonized as a simple effort to disclose the basic risks company is facing. with purpose a few times today in ways that are so obviously relevant to the shareholders of that company. of course is a broader set of questions that are critical. but for many companies, their exposure to climate risk is a simple and straightforward issue. if you have most yearbook financing for fossil fuel financing an investor might say, i think it would make sense to have more exposure.

the basic information is what being demonized. not any requiring of changes. >> they really were muzzle people freedom of speech. i know you see it that way, you're getting funded by people. i'm looking at you all and i'm telling you i don't these companies are not my constituents. you are all here because of peter teal and leonard. nobody cares about what's going on with housing. nobody cares about the fact fighting for head start program dollars. this is not this is me a girl from southwest detroit looking at this growing up in the back

shadow of the only oil petroleum refinery in the state of michigan, marathon oil. you are telling me that the teacher and others concerned about this that live and can have transparency and disclosure can have a say. they call them activists because they politically disagree with them. most of them were activists before they got here. i respectfully disagree because unlike that's your right to disagree. i wish we could do more on housing. >> you are recognized for five minutes. >> thank you for all of you joining us here today i will say that inflation rising cost of directly impacting people as opposed to just talking about let's get after doing something

about it. the situation was made worse by proxy advisory firms and their robo loading but millions of americans 401(k) and pensions at risk. this is happening as half of all ããsimply to buy a home. let's get to it, mr. copeland, are you aware only to firms control approximately 97% of the proxy advisory market and how does it affect duopoly really limit investors choices? ... voting controlled by the two foreign owned firms. how does it limit choices? it is a hard market to break. not a big market where you get venture capital throwing money in it. they are paid a premium because

people want control of voting. not because it is a great business model. it also makes it very subject to capture because it is not a business that can get a lot of public buyback, no individuals. so they can be captured by the activist forces and they make more money where they are more supportive of environmental activism. the companies pay them to leave them alone. >> you are absolutely right. u.s. markets. >> investors are 20% more likely to oppose manage rent simply because proxy adam: vicars recommend it and doesn't show disproportionate power, would you agree with that? >> yes, i do. it's not just correlation but evidence of causation. when the firms flip their vote occasionally they do it, it's rare but you see the 20% right

away. you would agree that the process of robo voting, however works but they adopt proxy adviser recommendation and silences the first amendment rights of retirees. i've got a bill out there it's calling protecting american savings actil and requires the c tong finalize rules prohibiting the use of robo voting with respect to vote related to proxy advisers. >> yes, particularly for many smallerr administrators there's no motivation to do independent review and analysis and exercise fiduciary duties before voting.

instead reliance on the proxy advisory firms. >> and i would highlight here, it also ensures that this voting the optional which is important to protect, you know, our shareholders particularly retirees from being dragged into the often very social focused political fights and allows them to just really focus on their retirement. >> that's very important to do statutory. sec has moved that way in guidance but these proxy advisers came about dol and sec, you have a fiduciary duty to vote and empowered the firms. now while they clarify this, it always changes and making it clear in statute will make it useful. an go that complement the bill. >> without objection. >> quickly talking about the sec

rules, former secretary ginther expanded to cover proxy voting advice. normally solicitation means directly asking someone for their vote. he went further, saying research or recommendations from proxy advisers should count. the thought process versus the actual. do you believe the sec has exceeded their authority by going from asking for it to just implying people should do this? >> he certainly just said that -- >> when they struck it down, you are right. >> that is why it is important for the body to act in this space because i think the proxy advisor firms should be regulated. >> thank you, mr. chair. i would yield back. >> the gentleman from new jersey. you are recognized. >> if i can direct questions you, thank you for being here today.

-- is an anti-semitic slogan that relates to a wave of terror that killed more than 1000 jews. -- discouraged of the phrase, but refused to claim it as anti-semitic regular -- rhetoric. he also called it a blaine call of violence against jewish people, which is surprising because anti-semitic violence is at an all-time high in this country, including new york and new jersey. i want to know if you think it is a call to violence. >> i have made it clear that when i hear that phrase, what is ringing in my ears is violence against jews in the second intifada and in the u.s. recently. >> you condemn the phrase? it is a yes or no question -- >> i make clear that i think when people use it, they are

saying open season against jews. >> so we should do everything we can to get them to stop using that phrase? >> there is no law against the phrase -- everything we can do, i make clear how i feel about it and what i think when i hear it. what i want a law saying it was banned? i would not. >> you think we should allow that -- you think we should condemn i t? discourage it? you won't even condemn the phrase? >> i have made very clear how i feel -- >> it is a yes or no, it is not that hard. >> when you say anything we can do, are you saying there should be legislation -- >> i reclaim my time. this question is do you condemn the phrase globalize the intifada? >> what do you mean by condemn? >> you don't know what the word

condemn means. >> i'm afraid there should be legislation making it illegal to say -- i don't like how it sounds -- >> you can condemn -- >> i legislation making it illegal to say -- >> i condemn lots of things that i don't think should be legislation. >> it is awful and i don't wish people should say it. if you think it should be made illegal by legislation, no. >> sounds like i heard you say you condemn it. you personally would not say it -- you think it should not be said? >> i would prefer people not say it. >> okay. it is surprising you are advocating for free-market policies and good corporate governance, which i support. do you think the government should be running grocery stores in new york city? >> i'm supporting, as you know, the senator and he's supporting five pilot grocery stores throughout the boroughs in order to address grocery store costs.

>> you think exempt from property taxes and rent, they will not support small businesses by longtime residents and immigrants and others? to compete with the government run ones? >> we don't have enough information to know the shape or the forms and how competition would take place. i love my local bodega and grocery store, they are owned by immigrants, i want to see him thrive. >> it would be tough if they are competing against social is driven -- >> many places in new york city are food deserts and have no good grocery store providing decent nutrition, affordable food. in those places i don't see any harm offering -- >> you can have incentives like we have to encourage. >> we have a program called the fresh program which might office audited and found it is a pretty ineffective incentive. >> having the government going to run a grocery store is what you think is a solution? >> in places where there

currently are no grocery stores -- what would be the harm? >> i want to talk about people who commute to new york, to spend money and contribute to the economy. >> we love to have them. >> that is great that you love them, the tax hurting them. it was really and he announced it would be increasing subway fare, the mode of transportation you suggest commuter steak instead of driving, do you support the price increases? >> our support congestion pricing. as you know, we want to -- >> what about the fair increases at the mta? >> i don't support the fair increases. >> i worry the nickels and dimes folks, it hurts a lot of people. just like going after israeli bonds and encouraging investment, which would really hurt the economy of new york. with that, thank you very much. >> the chair are our

subcommittee on capital markets is recognized for five minutes. >> i want to make clear that i absolutely condemn the phrase globalize the intifada. as i know you do, too. to the topic at hand, mr. mueller. i reviewed your firm's august 8, 20 25 report on the most recent shareholder proposal season. it caught my eye that 37 companies received a nearly identical proposal from the same proponent, and that these proposals made up 18% of all successful no action requests this prior year. these numbers seem absolutely staggering to me. i want to dig in a little bit more. can you tell me briefly about this proponent? for example, what did his proposal ask that each company do 37 times?

>> this was an individual named chris miller, no relation. he submitted three types of proposals, all really addressing technical issues about ownership of stock certificates and a certificate form instead of owning through bank or firm. >> was he selling something? was he advocating on behalf of something? >> it was not clear why he was doing this. he typically owns very little stock. >> how many shares of each stock that he own? >> in most of them, one or two shares. >> the proponent only had one share of each company, which typically would not mean -- meet the rule for ownership threshold? >> that is correct. those companies still had to go through all of the process -- >> getting the proponent did not meet the ownership threshold. the companies asked the

proponent to withdraw his proposal. what does he say? >> many of my clients did. we always try to negotiate and engage with the shareholder proponent. typically his response was if you do what i ask, i withdraw my proposal. >> if you do what i asked. it sounds like blackmail to me. to your knowledge, do some companies caved to his demand to purchase the software he was pitching? >> i'm not aware of any of my clients that did. he did say some client companies did. there is no transparency on that. >> some certainly have. if it was so clear his proposal could be excluded, why did companies need to submit no action letters to the sec, because they did. how do proxy advisory firms play a role in this? >> the proxy advisory firms have policies that if a company

excludes a shareholder proposal from their proxy statement without having either a court opinion or sec no action letter, that they will view it as bad governance. regardless of the circumstances and recommend votes. >> this is just one of many examples. it clearly demonstrates just how broken our shareholder proposal process is. under this flawed system, companies are often forced to waste valuable time and resources fighting proposals that are irrelevant to the company's bottom line, hurting investors, and workers alike. in your first hand experience dealing with activist proposals and the bureaucratic hurdles that they created, what changes do you think are necessary to fix the system and ensure investors, investors interests, are put first?

>> there's a number of helpful proposals in legislation. but raising the threshold a shareholder has to meet, certainly mr. landers has skin in the game, but not all of them do. eliminating or raising the resubmission thresholds. there is also a problem with serial proponents. shareholder proponents that will drop the proposal at a company every year. it may not be the same proposal. >> thank you, i'm sure there are others you would submit for the record. i'm proud to have my legislation, the corporate governance examination act, included as one of the bills in the hearing today. it requires the sec to conduct a study at least every five years on the shareholder proposal and proxy processes. it is and going to make sure the process becomes unnecessary,

doesn't become necessarily politicized, and will help to inform congress and the sec on changes that might be needed to ensure we put investors first. i yield back my time. >> the gentleman from florida is recognized for five minutes. >> it is good to be here. we have said -- a couple things a lot of members and activists on their way to coming to capitol hill. i was an activist locally in my community before i came to capitol hill. the thing we always advocated for was free markets. the u.s. constitution. we did not want to have outside groups wielding this nefarious power to try to shift the very fabric of our capitalist system underneath our noses. and it looks like these proxy advisory firms have been doing that very thing, using our system of free information as a way to shift the very nature of

free market competitive economics and substitute that with nefarious counterculture socialistic policies that were not in the best interest of the u.s. esd policy is very indicative of that fact. it is a hearing that in my view was long overdue. mr. copeland, can you elaborate how activists have hijacked the proxy proposal progress to push left-wing ideology through corporations? >> yes. a very small percentage of shareholders are introducing virtually all of the shareholder proposals. the corporate guidelines, one who gave himself a proposed one third of all shareholder proposals. then you have social investing funds. with an express purpose that is different from maximizing share value. the labor affiliated funds can

be private labor unions like the contractor's union. they can be public pension funds for public employees such as the new york city funds. and that is really who supports these. none of the other institutional investors that are simply focused on the markets do that. some vote for them in part because the proxy advisers are directing them to tell them to and they defer to those proxy advisors, in part because the passive index funds, they've gotten better in the last year. they've historically gone for this. they don't have skin in the game in any of these companies because they are mirroring the stock market. >> some of those funds, social impact funds, the performance is actually worse than the funds looking for value. a detriment to the shareholders across the board. do proxy advisory firms have

fiduciary duties to the companies or shareholders that they are advising? >> they do not have fiduciary duties to the companies they are advising and propose the standards on an implicit threat to follow the regulations. iss does have a fiduciary duty to its clients because it is regulated under the investment advisor act. i think that is an important distinction because they do the exact same thing. it is in my mind as to why one of them is regulated and it is a very light touch regulation. it does not really make sense one would be regulated and one would not. >> this hearing got interesting with my colleague from new jersey. mr. lander, you are the comptroller of the city of new york. you talked about the proposal for government run grocery stores. do you think that is a viable proposal for the people of the city of new york? >> all around the country there

are a few places where there are publicly owned grocery store is designed to offer healthy, nutritious, affordable food in deserts where people have no other options. working in red and blue states around the country. >> you realize these grocery stores have less product available, the food is not nearly as good, some of them shut down, the standards in them are quite frankly disgusting. do you think it is the interest of the people of new york to open this up? i'm from brooklyn. i grown up in the city. >> i'm glad to hear it. if you grew up in low income neighborhoods in brooklyn -- >> i grew up in crown heights -- >> you would have seen many privately owned stores nearby have low quality and high prices. >> the city of new york used to distribute food, they got out of that business. they did when i was a kid. >> we still provide a lot of free meals in our summer camp programs, afterschool programs,

and in our schools working class families rely on. >> last question for you. can you condemn the phrase globalize the intifada. >> i made clear if you mean i don't think people should say it -- >> so you won't condemn the phrase -- >> the gentleman's time has expired. >> this is why the city of new york is going down the toilet. >> it is doing great, you should come back and visit. >> the gentleman from wisconsin who chairs our ai subcommittee is recognized for five minutes. >> thank you for holding today's hearing. this is a really important topic we need to discuss. it tells you a lot about the state of the democratic party where the witness has to come and defend government run grocery stores. shows you a lot about the state of the democratic party. let's dive into proxy advisors. i think it is one of the biggest

unknown challenges we face. the proxy advisor duopoly run by foreign own operations is highlighted by mr. copeland. it sets us up for an opportunity to stop the abuse that has been occurring in americans, retirement accounts, pension plans, which have been weaponized to deliver a political agenda rather than to prepare them successfully for retirement. i want to talk about potential conflict of interest. and whether or not the conflict exists inside iss and glass lewis providing two key services at the same time and claiming there is not a conflict. on one side of the ledger, they are advising asset managers about the underlying shareholder proposals. is that correct? on the other side, are they

providing advice and >> yes. engineer >> they are paid by reviewing promises to impact managemented a other said paid by management to provide consulting services. >> yes. >> that seems like a conflict of interest. >> it does. >> one way we can handle that is disclose this to the public. it would be rational to me that the s.e.c. would force i.s.s. and glass luis to -- lewis would expose that. >> that is reasonable to me. >> does the s.e.c. repair this type of disclosure? >> it doesn't. there were efforts made --

>> you come in, you had a proposal but struck down but you can come in under the securities and exchange commission and force those disclosures by i.s.s. and glass lewis ultimately, right? >> it has been litigated and courts are coming down in slightly different ways. that is why this body ought to act. i think you have a bill that would have them be registered. >> my bill does exactly that. the comment that only i.s.s. has you would encourage congress pass legislation to put both of them under a regulatory environment, right? >> absolutely, that would be welcome at the federal level.

>> mr. mueller you would agree? >> yes. >> what is the risk for people who save for environments could be part of a pension plan that the underlying proposals is being driven by two proxy advisors, one i.s.s. and both glass lewis which are owned by entities outside the united states. what does that say to americans saving for retirement? >> their concern is whether their votes are being used productively error help enrich the two firms. >> have you seen oil companies being told to stop producing fossil fuels or an insurance company told to price insurance based on race which is obviously

illegal. have we seen these regulations by there duopoly? >> we have seen them shore shareholder proposals that is not in the best interest of mention but hijacked by duopoly foreign owned entities not disclosing connects of interest. this seems problematic. we have an opportunity to act. i have legislation i have introduced time and time again. the s.e.c. ends this duopoly and stands up for the american people so their retirement funds are not hijacked to deliver the political agenda of the proxy advisors. i yield back. >> the chair of the house's homeland security is recognized.

>> urgent reform is necessary for democratizing shareholder oversight is used to push niche policy objectives that do not align with maximizing shared value. this diverts significant resources from fundamental business matters and skwrpbtdz -- undermind them. do companying feel like they have to hold volts on certain things -- votes on certain things. >> yes under the current resumes. >> what are some of the ramifications? >> if things can be misportrayed in the press the proxy advisor firms can treat proposals as effectively binding and vote against directors if the company -- if the board doesn't say with our fiduciary duty we disagree

they could be asked to violate that or we are going to vote no on your directors for the proxy adviser. they will do that when 70% of the shareholders vote no on the proposal. that's insane. >> it's definitely insane. under former sec chair, thank god he's gone, include politically motivated shareholder proposals and annual statementste reversing forms frm 2020 to 2024, the total number of proposals grew with environmental and social proposals, climate change, dei, becoming dominant part of the shareholder landscape. this is an obvious answer, i

think, but the shareholder proposal process being abused by the special s interest groups? >> yes. >> yes. so i want you to go on record and talk about some of the examples that have for this abuse? >> yes, i point today these for -- pointed for theseyearsment ap like peta and talk about leather patches on the jeans and get on the agenda with small amounts on this. >> when you say small, what do you mean? >> a few thousand dollars which would be enough to get over the threshold. the threshold goes up, it'll be a little more. we commissioned a study with comptroller lander when launched accountability project and represented d the new york pension funds have been playing politics for years with adopters

and not only a negative association in terms s of share value,-- environmental and socialism that public pension funds were engaging in but we found they typically invested less relative to other companies than thed companies they were engaging with. so they weren't putting where their mouth was, enough stock but not as much. so we've seen individual shareholders make a livering out of this. the late evelyn davis was one of the early corporate gaslights, $6,000 a year selling a 12-page booklet to corporate ceo's and youu had to buy two, $650 per booklet basically because they want today stay in hair good graces, i they didn't want her o targetet them. >> what's even worse, i think, a lot of the proposals less than 30% l or participation totes indicates this is out of step

with most shareholders. investors rely on firms to meet fiduciary duty bys providing support for thousands ofdu votes each year. we must also take into account the cost of cut for advisers of all sizes. how can congress without adding costs or barriers that impair advisers' ability? >> i think they should be registered. i think they should have oversight. i think there should beer disclosure. i think there should be disclosure on the institutional investor side if they're utilizing the services, certainly the robo vetting the services. if they're just defer to go the proxy adviser, all of these things could help. >> thank you, iin yield back. >> chairman yields back.

gentleman from wisconsin. you'reth recognized for five minutes. >> first i would like to ask unanimous consent to submit letter, proxy power, abuse to the record. >> without objection. >> thank you, gentlemen for being here and mrs. ferrel. thank you. try not to be redundant but i wanted to go back to something and say it just in black and white and that is iss and glass lewis leveraged control of proxy advisory market to encourage u.s. companies to purchase their consulting services. that's happening. creating that appearance and doingdo so, it may help to avoid the negative voting recommendations but mr. mueller, in your experience, working with public companies, what risks do you see when proxy advisory firms issue voting

recommendations while also selling consulting and advocacy services? >> three reallyy quickly. first it encourages to firm to have lack of transparency so that you have to buy their services to know how they're going to recommend on something and it also encourages kind of check of the e box approach by e proxy advisory firm because they do maintain ethical wall but if both sides of the wall have the same checklist, the wall doesn't matter. there's still a conflict of interest and then, of w course, shareholders and companies are the ones that are suffering on the votes. the customers iss as we heard may not have the economic incentive to exercise a lot of scrutiny on those voting recommendations but they're not the ones that are hurt, it's the shareholders at large and the companies that suffer from the voting recommendations.

>> so in your estimation, is there any way for this to be kind of shifted or change in a way that would i eliminate the conflict or is the only way to really get rid of this, the only way of addressing this is legislation which is to simply sever thegi ability to do that,o get rid of the conflict? >> it should certainly be regulation because right now the sec has -- has its arms tied behind its back on this and, yes, they should certainly evaluate. certainly, for example, audit firms are not allowed to both audit a client and get certain consulting services to his clients. it's just an irreconcilable conflict and it's prohibited and that may be the tension here. >> mr. copland, turning to you and based on your research and analysis of shareholders process, can you discuss how recurring or duplicative

proposals effect efficiency and clarity of the proxy materials that people are receiving very often and -- and in a way that sometimes is nonchalant. it's simply mailed to them and they are overwhelmed. >> yeah, it can be hard to figure out. if you have two proposals on similar subject matter, are you going to really tease those apart? well, shareholders vote yes on one and no on another and ambiguous or there's an confli. recurring issue because traditionally have been so low, opponents can get on the ballot year after year after year. and the proxy advisers take the odd position that if it fails year after year after year and then one year it gets a majority, they've got to act on that or we may vote against your directors evenr though it could potentially flip back the next year. so it's kind of a mess. i didn't much of this testimony about it but i put it in my 2016

testimony and common letters to the sec in 2020 and 2022 on this issue and they are all referenced in my written testimony. >> yes, so you currently believe thresholds for resubmitting the failed proposals which is kind of a whole other area, you department get the outcome you wanted so you simply bring it back again maybe with different verbiage, right? >> could be different verbiage or the same verbiage. they could be doing it year after year. you get a proxy firm that likes it it's going to stay in ballot perpetuity effectively even if the vast majority vote against it year after year. >> thank you, chairman. i yield back. >> r the gentleman yields back. gentleman from nebraska, the chair of housing, mr. flood, you're recognized for five minutes. >> thank you, mr. chairman. as we talked about we have

increasing alarming problem as it relates to shareholder proposals in thehe country. 62%. that's the number i want you to remember n.2024 environmental and social proposals made 62% of shareholders proposals according to report from is serving corporate. think about that. more than 60% were related to environmental and social topics. that's a really staggering total and it's one that should alarm everybody on this committee. we have activists treating public companies as their own personal forum for social and environmental change and quite frankly it's a waste of time and it's a waste of money and it's ultimately sucking productivity out of our economy and into organizations that stick to perpetwait endless and cultural war in corporate america. something that i don't think proponents of progressive social and environmental shareholder

proposals fully understand is that with the door open to political shareholder proposals we are now seeing politically motivated shareholders proposals coming from now both directions. according to financial timess. article from last week u.s. shareholders did not pass a single environmental shareholder proposal in 2025. on the other hand, antiesg proposeels are increasing in frequency. according to recent study, antiesg proposals increased get this 67% from 23 to 24 in the 500 largest companies of revenue. we are seeing the beginning of what's likely to become a pattern. in years when the cultural momentum is moving to the left, we have surge of environmental and social proposals and in years when we have a cultural movement to the right we arere going to see more antiesg shareholder proposals. the end result is that we never actually addressed the

underlying issue of activist shareholder proposals, instead theho investors will use public companies as political football and we will see them whip saw from one set of cultural objectives to another. you highlighted propoetsal that would have asked store that sells hammers and nails to make a public statement on abortion. let's use that particular proposal as an example? what kind of costs would the company incur on a single proposal like that in terms of money, employee time and legal >> legal fees? >> they would have to think of internal policies, procedures, how they are currently addressing these issues of health care withce their own employee, what sort of information they would have to disclose and what they're requesting of them but i think the bigger paint, maybe, i think tangible kind of costs of taking stand of something polarizing and personal. so they are being asked to take

a stance on something, employees, customers, suppliers, everyone is going to have a different view and it doesn't have to do nothing with the business and query why they having to addressha it. >> we make steel in the middle of the prairie in north nebraska. theirr retirement is underpinned by mutual funds. they go to work every day and they watch that balance and they want to know if america america is booming, so are they, but instead activist shareholders gets in there and start messing with that steel worker's future and their balance and i think you make a very good point there. i think it's important to highlight these are frivolous proposals that are not victimless and they aren't costless. these activists are using the capital markets to play these games. i'dd like to speak briefly on te proxy advisory firms and their extreme power in the story. in an article recently published by the financial times i was struck about quote proxy

advisory firm iss. mark lindsey of jasper street, firm that advises public share companies for proposals, when asked of proposals passed this year, he said, quote, every environmental proposal that has passed at iss has a supporter and this year no proposals of iss has a supporter. mr. copland, can you speak to iss recommendation and the result of shareholder proposals? >> studies vary on it. we did one in 2012 and what we found using the datas that we were looking at iss recommendation was about a 15 percentage point in favor of a shareholder proposal. i've seen higherld estimates. probably depends a lot on company size in terms of how much delegation to iss there would be on the part of the constitutional investors. >> i appreciate that, with that i yieldwi back.

>> the gentleman yields back. the gentleman from indiana, you're recognized for five minutes. >> thank you, mr. chairman, the shareholder proposal process we are discussing today was originallyly designed to give investors a voice in the companies they are shareholders of but today the process has been hijacked, small group of activists will buy enough shares to qualify under the law and companies with radical social political proposal that is have nothing to do with profits, job innovation. insteador they force businesses into costly debates on climate change, dei, gender ideology, it's businesses across the country including those in indiana that areco targets as well. headquartered in columbus, indiana was the target of a resolution demanding that it ties executive pay to targets

that would destroyoy its busine. eli lili another indiana-based company activist demanded that it divert critical resources to report on dei hiring quotas instead of focusing on its core mission of developing life-saving medications not hid. groups like as you sew tphroupbt tphroupbt their proposals. here is one for amazon. they pressured the company to hire an expensive law firm it conduct a fell fledged available equality audit. over 30 companies from uber to chipotle have been pressured into similar audits. here is another for coca-cola that demanded at the study how to increase abortion abscess for their employees.

here is for mcdonald's that asked them to explore genders affirming care. all it takes is a few thousand dollars for them to proposal these radical ideas and have them included for a vote. thank you for being here. mrs. kiel i know you spent time with them. how difficult is it to combat these and what are the cost for those that choose to do so? >> there are a few ways to go about it and a important word is combat. it would be ideal if we were abe to think are we deciding what is material to our investors. are we exercising a legal right by going to court to understand the application of these rules. i would not that combative. i would say that is exercising

one's heal rights but it is in order inordinately expensive. >> are you seeing a lot of action with investors pushing companies has calmed down or still seeing a lot. >> it is more than ever because we see tell left and right. we will see it on the same proxy statement pro and anti. >> mr. copeland, we heard the need of more transparency from proxy advisory firms and certainly cause for concern. just that proxy advisor firms, control 90% of the market but

lack meaningful oversight so we've little information about the independence of their recommendation or potential bias. do they tend to favor certain proposals and give more support to left leaning e.s.g. and d.e.i. than conservative concerns is it >> missilely -- historically yes. there was a pull back from i.s.s. this year but historically we've seen up to 70%, 50% of left leaning proposals and never support for more free market or conservative proposals on the other side. >> thank you for having this today. i have seen this up close and perform in companies in my private activity and it can

cause really problems. i appreciate the witnesses' testimony. >> the gentleman yield back. the gentleman from new york is recognized for five minutes. >> mr. lander the new york state controller put out a report that $1.2 billion in taxpayer money was spent paying for healthcare premiums for medicaid recipients that no longer lived in new york state. have you seen that? >> i have not reviewed that. >> are you going to review that? >> i'm going to review that. we can't afford to be doing. >> so you will evaluate the impact on new york city? >> absolutely. >> do you support the use of tax pare money used the -- pair money to employ healthcare for illegal immigrants?

>> the short answer is yes why folks are undocumented but working in new york city it is better for them to have access to primary healthcare than to winds up in emergency rooms in ways that bear greater cost. >> so you distinguish if they are working. if they are not working do you support the use of taxpayer care? >> the primary care approach is what we try to use. if somebody is brought to an emergency room should their life be saved or how -- that is the law and hospitals do provide that care. but specifically in new york billions of dollars of taxpayer money has been used to provide free housing, clothing, food, education and healthcare to illegal immigrants.

regardless of with they are working and we have seen in new york city in particular the city of which you are the comptroller billions of dollars of taxpayer money used. do you support the use of they will to provide free healthcare? >> i answered yes. billions of dollars are generated by people for taxes. >> there's no question immigrants that contribute greatly. the issue is in new york hundreds of thousands of migrants the sky has crippled understood the weight of that cost. those are the words of the mayor. those are the words of the elected officials. you called yourself in 2016 a brooklyn jewish democratic

socialist. so my question to you is, what is your relationship with the working families party of new york and democratic socialist of america new york city chapter? >> of the working families party i'm a member and donor of the democratic socialists of america. >> do you support the d.s.a. of knockout? >> i'm not a member or a donor to the d.s.a. of knockout? >> there's a lot of overlap between the d.s.a. and w.f.p. do you support the work of the d.s.a.? >> there are things they supported that i supported look raising minimum wage. some i don't support like b.d.s. >> the d.s.a. of new york city just adopted a resolution as

part of this national convention they want to expel members who do not come my with their extremist views and anyone who supports israel's right to defend themselves. do you oppose that position in their platform? >> yes. >> the person you support for mayor is fully endorsed and he will braced by the d.s.a. of knockout and said israeli bond investments violate new york city values. do you agree with your endorsed candidate for mayor that israeli bond investments violate new york city values? >> i'm the fiduciary for the investments and make decisions based on that only congratulations. broadly i i don't support b.d.s. their pension funds understood my watch i have over $300 million invested in straight

companies. we do not have israeli bonds because we do not have other bonds in other countries like england -- >> do you think they valent new york city values? >> my job is to the to assess -- >> it is a i have a fiduciary duty to figure out the best risk-adjusted -- >> the gentleman's time has expired. you can continue this in writing at the request of congressman lawler or perhaps meeting in the hallway. we now recognize the gentleman from montana for five minutes. >> thank you to the chair and the witnesses. as a former commissioner of securities, i had certain interactions with the former

administrator of the sec, gary gensler. when he would bring things down such as rule promulgation on mandatory crime disclosure and other things, i would reach out to him and say my job as the commissioner of securities is to protect investors, your job is to protect investors. that was a common refrain. another short story was i was also the commissioner of insurance. i had a meeting with a reinsurance group i will not name here talking about the risk -- they were pulling out of oil and gas, they said animal rights issues, and other things. that raised my interest. i said i come from a state where we have more cows than people and we plan on eating them, is that going to be a problem? their response was, we are not sure. cap forward a little bit -- fast-forward a little bit.

i had a reinsurance person come up to me and tell me about their proxy votes. they said we are being pressured to take positions on esg issues we do not believe are in the interest of our business. that really caught my attention. all of the stuff i am dealing with as the commissioner of securities and insurance is coming from something that has another goal. my approach was focused that did not like something could not shut it down from the front door so were trying to come from the back door and make sure he did not have access to capital markets and insurance. i am going to start here on proxy advisors, thank you for bearing with me on that. today, we have a duopoly making up 97% of the proxy advisory market. often, it seems like these firms care more about pushing a social and environmental agenda on public companies than doing what is best for shareholders.

proxy advisory firms have no legal obligation to act in the best interest of shareholders despite having enormous sway. i'm going to start with mr. copland:. how does this lack of fiduciary duty impact the objectivity of recommendations? mr. coplan. it has to. there is no check on them. they can say to some degree whatever they want. there's going to be and i fraud repercussions etc. it is not a clear fiduciary situation. they are contracted with other fiduciaries. it is tricky but it certainly affects the quality. >> it is a shame the previous administration focused on the need of activists rather than everyday investors. the sec essentially encouraged activists to force companies to consider and adopt policy changes that joe biden and the democrats cannot get through congress.

thankfully, sec chair paul atkins has already rescinded some of the decisions that permitted the worst abuses of the shareholder proposal process. i'm going to move on to mrs . keel. in june, they upheld the amendments that set eligibility requirements for proxy statements per the court found the sec acted appropriately in updating the rules for support levels required for proposal and resubmission. do you think the sec should consider raising current thresholds? >> i definitely do. i think it is important. in a lot of areas of securities, we try to align people with influence with the economic influence and skin in the game. we do that with directors in real activists, not the activists we are talking about today. we do that for employees and executive officers.

here, we do not really have any economic alignment to safeguard against someone exploiting their own interests. on the resubmission thresholds, i think when we ignore the majority of the shareholders votes, it is ignoring their voice. if we are talking about shareholder democracy, we should respect what they have to say. >> thank you. shifting gears a little bit, there are obviously costs in terms of time, resources, legal fees, and responding to proposals. do you have any thoughts on whether the costs increased during the biden administration, and roughly by how much? mrs. keel: i do not have a dollar amount but i would say the cost is indirect because it is the pressure on companies to adopt the use of disclosure standards. it would take about $500,000 to do a sustainability report each year. >> the gentleman's time has expired.

the gentleman from south texas is recognized for five minutes. >> thank you, mr. chairman. thank you to all of our witnesses for being here today. as a south texas member of congress, i come from a district where we are hard-working, blue-collar, entrepreneurial and really business driven. most people i know walking into my local grocery store and familiar faces, i can tell you that the money that they earn and invest, they want to know that money is growing for their future, for their family's future, and not to promote a political agenda. so, i am grateful for you all to discuss this important issue. there are some activists using this system to advance their

agendas rather than maximize shareholder value for our constituents. miss keel, i think for some people.com, it is hard to understand what rule 14a8 really is and just the basics of it, how it impacts. if you were talking to my person in rural texas, could you give us some basic information about this rule and how it greatly impacts their life in george, west texas? ms. keel: the rule came into effect in the 1940's. the purpose was to bring matters of concern to fellow stockholders. it is meant to have stockholders have access to management. over the years we have seen it is not really bringing matters of concern to fellow stockholders, it is bringing matters concerning to them and

very narrowly just them. right now, we will see lots of shareholder activists from the left and right that will submit proposals relating to all sorts of issues. some are governance, some compensation. we have a lot of proposals on the environmental and social. those will be addressing highly politicized topics that reasonable minds can certainly disagree on. when they submit those to a company, a company is obligated to consider those and put them on the statement unless it decides to exclude it. there is an entire process for going through that process. >> you mentioned these are activists from the far right and far left, that there is an issue here that we need to address. that issue needs to be rational guardrails to put in place. this should really not even be a partisan issue.

this should be a common sense issue. what guardrails could you share with my constituents today that would be very effective? ms. keel: the simplest is a threshold of ownership to ensure there is some sort of alignment, that somebody is not defined $2000 worth of stock, not to say that is not a lot of money, but to be able to